Temporary Insolvency Relief for Financially Distressed Companies and Individuals Expired on 31 December 2020

15 Feb Temporary Insolvency Relief for Financially Distressed Companies and Individuals Expired on 31 December 2020

In March 2020, the Government introduced the Coronavirus Economic Response Package Omnibus Act 2020 (“CERP Omnibus Act”). On 25 March 2020, Schedule 12 of the CERP Omnibus Act commenced and introduced temporary insolvency relief for individuals and companies who were financially distressed due to the coronavirus pandemic.

Under section 459E of the Corporations Act 2001 (Cth), a creditor may serve a statutory demand on a company that requires the company to pay an amount of debt that is at least the statutory minimum, within the statutory period. Before the CERP Omnibus Act, section 9 of the Corporations Act defined the statutory minimum as $2,000 and the statutory period as 21 days.

The Bankruptcy Act 1996 (Cth) provides in section 41 that an Official Receiver may issue a bankruptcy notice on the application of a creditor if they have obtained a final judgment or final order against a debtor. This must be for an amount of at least the statutory minimum, within the statutory period. Section 5 of the Bankruptcy Act defined the statutory minimum as $5,000 and the statutory period as 21 days.

On 25 March 2020, the CERP Omnibus Act inserted new regulation 5.4.01AA into the Corporations Regulations 2001 and new regulation 4.02AA into the Bankruptcy Regulations 1996. These insertions had the effect of temporarily increasing the statutory minimum to $20,000 and increased the statutory period to 6 months. Originally, these regulations were to be repealed 6 months after commencement, on 25 September 2020.

The Corporations and Bankruptcy Legislation Amendment (Extending Temporarily Relief for Financially Distressed Businesses and Individuals) Regulations 2020 commenced on 22 September 2020 to extend the relief measures. This inserted a new sub-regulation 5.4.01AA(3) into the Corporations Regulations 2001, which provided that the regulation is repealed at the end of 31 December 2020. Similarly, it inserted sub-regulation 4.02AA(3) into the Bankruptcy Regulations 1996, repealing the regulation at the end of 31 December 2020.

The temporary insolvency relief for companies expired on 31 December 2020 and has not been extended. Accordingly, the statutory period has returned to 21 days and the statutory minimum to $2,000 for statutory demands and $5,000 for bankruptcy notices.

If you have any questions regarding the above information or require legal advice in relation to the impact of these changes on your business, please contact Grant Hansen (ghansen@harrisco.com.au) or Ian Smith (ismith@harrisco.com.au).