During the initial months of the Covid-19 pandemic, many Australian businesses began to feel the financial weight of trying to keep their business afloat while the majority of the country was in lockdown. In this article by Lancaster Law and Mediation (LLM), find out from insolvency lawyers in Sydney how the coronavirus impacted insolvency laws in Australia, and what the government did. LLM is a commercial law firm with insolvency experience and expertise who can help answer your questions in this area.
Covid-19 Response Act
The Coronavirus Economic Response Package Omnibus Act 2020 (Response Act), was implemented by the Australian government, coming into effect on 25th March 2020 with a provisional end date of 23rd September 2020. The act significantly changed insolvency laws as relevant to all businesses, providing financial assistance and relief to those entities that experienced fiscal distress as a direct result of the Covid-19 pandemic.
Key Aspects of the Response Act
The Response Act initiated a number of key changes that were designed to protect businesses against potential insolvency or bankruptcy. These included:
- 6 months of Safe Harbour for directors, protecting them from personal liability subject to certain stipulations
- The minimum dollar threshold to issue a creditors statutory demand increased from $2,000 to $20,000
- The deadline for a company to respond to a creditor’s statutory demand extended from 21 days to six months
- The minimum dollar threshold for a creditor to initiate bankruptcy proceedings against a debtor increased from $5,000 to $20,000
- The deadline for a company to respond to a creditor’s bankruptcy proceedings extended from 21 days to six months
- Protection under a Declaration of Intention extended from 21 days to six months
Supplementary regulations, not listed here, took effect at the same time, all with the ambition of minimising financial distress of Australian businesses. However, it also delayed the collection of debts that were outstanding to other businesses.
The statutory minimum dollar amount and deadline for a company have now been reduced back to $4,000 and 21 days unless the company is eligible for temporary restructuring relief.
The minimum dollar amount for a creditor to initiate bankruptcy has now been reduced back to $10,000.
If you feel your business could benefit from the expertise of an insolvency lawyer, contact LLM today.
Insolvency Lawyers Sydney: Your Local Experts
At LLM, we take great pride in being one of the most trusted and professional commercial law firms Sydney has to offer. If your business is undergoing financial stress due to the pandemic, come and speak to our commercial litigation lawyers.