COVID-19 Insolvency: Extensions to Bankruptcy Laws for Eligible Businesses

COVID-19 Insolvency: Extensions to Bankruptcy Laws for Eligible Businesses

COVID 19 bankruptcy law temporary changes

In March 2020, as part of the economic response to COVID-19, the Australian Government announced a series of temporary changes to bankruptcy law. The main debt restructure changes included:

  1.  an increase of the debt threshold required for creditors to apply for a bankruptcy notice (from $5,000 to $20,000)
  2.  an increase to the time debtors had to respond to a bankruptcy notice (from 21 days to 6 months); and
  3.  an increase in time of debt protection periods available to debtors (from 21 days to 6 months).

As of 1 January 2021, these temporary changes have now ceased making insolvency a much more likely scenario for many businesses.


The new debt restructuring process

For eligible companies however, the Australian Government have announced a new and simplified debt restructuring process available until 31 March 2021.  This will allow financially distressed businesses to access a single and streamlined process to restructure their debts, while allowing owners to remain in control.  The main changes include:

  1.  an extension to the debt threshold required for creditors to apply/issue a bankruptcy notice or a statutory demand ($20,000);
  2.  an extension to the time a debtor must respond to a bankruptcy notice or statutory demand (6 months); and
  3.  directors continue to have a temporary safe harbour from personal liability for insolvent trading for debts incurred in the ordinary course of business.

To be eligible for the new and simplified debt restructuring process, directors must:

  • make a declaration about the company’s eligibility.

And companies must:

  • be a company incorporated under the Corporations Act;
  • be insolvent, or likely to become insolvent;
  • meet the above criteria if a restructuring practitioner were appointed on the day a declaration is published, or any day after if the declaration has not expired;
  • the board has resolved that a restructuring practitioner for the company should be appointed; and
  • there is no external administrator appointed to the company (i.e. there is no current appointment of a liquidator or provisional liquidator, administrator or administrator of a deed of company arrangement, or either another restructuring practitioner or restructuring practitioner for a restructuring plan made the company).


Our role in bankruptcy, insolvency and litigation

If you are a director and your company has been issued with a bankruptcy notice, statutory demand, or you believe that your company is close to bankruptcy or insolvency, Ramsden Lawyers are able to assist you. We are happy to arrange an initial consultation to assist you in navigating the procedures set out under the relevant legislation for your circumstances.


The content of this article is intended to provide a general guide to the subject matter and must not be relied on as legal advice. Specific advice should be sought about your circumstances.

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