RSM Australia

Insolvency - Temporary relief for financially distressed businesses

The Government has announced measures to extend relevant time periods for the expiration of statutory demands (Companies) and bankruptcy notices (Individuals) from 21 days to six months. The measures also provide temporary relief for personal liability for insolvent trading (applicable for six months) which allow Directors and business owners to focus on managing their businesses through the coronavirus health crisis and lessen the focus on their own personal exposure.

Most notable changes are:

  • A temporary increase in the statutory demand threshold to $20,000;
  • An increase in the time to comply with a statutory demand from 21 days to six months;
  • A temporary increase in the size of the debt required to issue a creditor's petition to $20,000;
  • An increase in the time to comply with a bankruptcy notice from 21 days to six months;
  • The moratorium on action against a debtor following the presentation of a declaration of intent to present a debtor's petition is increased to six months; and
  • A six-month moratorium on Directors' insolvent trading liability, for debts incurred in the ordinary course of business.

In addition, the ATO has been instructed to tailor solutions to a businesses' particular circumstances, including the ability to temporarily reduce payments due and withhold enforcement activities (Company wind-ups, Individual bankruptcies and Director penalty notices).

asset_35.pngA consequence of these measures may be to transfer a level of the financial burden onto those parties who provide services/credit to struggling businesses.  As such all business owners/directors should be extremely cognisant of trading terms and consider measures to accelerate customer/debtor recoveries (if possible) and negotiate the appropriate extension of terms with supplies.

It is noted that these measures are of a temporary nature and ultimately will be unwound, with the financial consequences to be addressed in due course.


For more information

If you require further information regarding the changes on insolvency laws, contact your local RSM office today.

To find out more about the current COVID-19 situation, please visit our coronavirus advisory centre.

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