Economic Response to COVID-19: Temporary Changes to Debt Recovery Laws in Australia

    On the evening of Monday 23 March, 2020, the Australian Federal Government passed a broad range of stimulus measures under the Coronavirus Economic Response Package that is said to come into force immediately. The Coronavirus Economic Response Package is a temporary (six-month) relief package to combat the economic impacts of the coronavirus disease 2019 (COVID-19) outbreak and to provide public health measures to prevent its spread. Temporary changes to the debt recovery and bankruptcy system included in the package are aimed at implementing a safety net for businesses to protect them from threats of actions that may unnecessarily push them into insolvency, as well as making sure that when the crisis has passed, normal business can be resumed.

    The key aspects of the package in relation to debt recovery include:

    1. Temporary increases of the threshold at which creditors may issue a statutory demand and the time companies have to respond to statutory demands, being:

    • An increase of the minimum threshold to issue a statutory demand from AU$2,000 to AU$20,000
    • An increase of the timeframe for a response to the statutory demand from 21 days to six months

    2. Temporary increases of the threshold at which creditors may initiate bankruptcy proceedings, the time debtors have to respond to bankruptcy proceedings and the period of protection debtors receive after making a declaration of intention to present a debtor’s petition, being:

    • An increase of the minimum threshold to initiate bankruptcy proceedings against a debtor from AU$5,000 to AU$20,000
    • An increase of the timeframe for a response to bankruptcy proceedings against a debtor from 21 days to six months
    • An increase in the period of protection debtors receive after making a declaration of intention to present a debtor’s petition from 21 days to six months

    3. Temporary relief for directors from any personal liability for trading while insolvent. This measure is to ensure companies have the confidence to continue to trade through the COVID-19 outbreak; however, it does not preclude egregious cases of dishonesty and fraud being criminally prosecuted.

    4. Temporary flexibility in provisions of the Corporations Act 2001 to provide targeted relief for companies to deal with unforeseen events that arise from the COVID-19 outbreak, through giving the treasurer instrument-making power to amend provisions of the Act to provide relief from specific obligations or to modify obligations to enable compliance with legal requirements during the outbreak. This is intended to streamline individual requests for approval as the regular process though the Australian Securities and Investment Commission (ASIC) takes a lot of time, which needs to be decreased in the current circumstances.

    It is important for clients to note that creditors will continue to have the right to enforce debt against companies or individuals through the courts through the regular processes during this time of temporary relief measures.

    Up-to-date COVID-19 information is provided online; please see the Coronavirus information and support for business section. More information on the business.gov.au temporary relief for financially distressed businesses is available to view online.