Extension of temporary COVID-19 relief from insolvent trading liability and statutory demands

The Australian Government has announced that the operation of temporary COVID-19 relief measures for businesses in the hope of aiding distressed companies and preventing further economic breakdown will be extended until 31 December 2020.[1]

Significantly, the measures will extend the temporary relief for directors from personal liability for insolvent trading. See our previous article regarding that relief.

In addition, the threshold at which creditors can issue statutory demands on companies will remain at the increased $20,000 threshold, rather than revert back to the previous $2,000 minimum. The Government’s media release also suggests that the six month time period companies currently have to respond to statutory demands will also be extended.

These initiatives are aimed at reducing the threat of actions that might unnecessarily push businesses into insolvency and external administration during a time of unprecedented financial strain.

The emergency measures were originally introduced in March 2020 through Schedule 12 to the Coronavirus Economic Response Package Omnibus Act 2020 (Cth). The decision to lengthen and adjust the operation of these measures is a response to Victoria’s second wave of COVID-19 cases and the ongoing effects of Australia’s economic recession.

These measures evidently prioritise the needs of distressed companies, with creditors’ interests continuing to take a back seat.

Insolvent trading moratorium

With respect to the temporary moratorium on insolvent trading liability, nothing in those measures affects directors’ obligations to act honestly (meaning that exposure to criminal liability for dishonest instances of insolvent trading remains) or their other existing statutory and general law duties.

Statutory demands

Creditors might consider it in their best interests to issue statutory demands now instead of waiting for these temporary measures to expire on 31 December. Although this might mean waiting six months for a company’s response, it may be unwise to wait until 2021 in the hope of an automatic “snapback” to the pre-COVID-19 statutory period. Given the uncertainty stemming from the ongoing effects of the COVID-19 pandemic, it is possible these measures might be extended again in early 2021.

In the event that the temporary measures expire without extension on 31 December 2020, any statutory demands already issued could be withdrawn and reissued after 31 December in order to obtain a quicker debt collection result.