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  • Gartree Thomson Lawyers

Insolvency Laws Updated

Temporary measures were brought into place by the Australian Government in March 2020 for the protection of individuals and small businesses in response to hardship brought on by COVID-19, making it more difficult for creditors to commence and finalise bankruptcy and winding up proceedings.


These changes, in relation to bankruptcy proceedings, implemented between March 2020 and December 2020, included:

  1. Individuals had 6 months to respond to bankruptcy notices;

  2. Temporary debt protection remained in place for 6 months; and

  3. The threshold debt amount to commence bankruptcy proceedings was $20,000.

As of 1 January 2021, these protections were lifted and most of the bankruptcy laws reverted back to their pre-COVID-19 stance, including:

  1. Individuals now have 21 days to respond to a bankruptcy notice; and

  2. Temporary debt protection now remains in place for 21 days.

The threshold to commence bankruptcy proceedings against an individual have also lowered, however, not to the pre-COVID-19 standard. The minimum debt amount required to commence bankruptcy proceedings is now $10,000 (as opposed to $5,000 prior to any COVID-19 reforms).


In relation to corporations, the temporary measures implemented for protection in March 2020 included:

  1. Corporations had 6 months to respond to statutory demands; and

  2. The threshold debt amount to issue a statutory demand was $20,000.

A new amendment has been published in relation to small businesses, coming into effect on 1 January 2021. Part 5.3B of the Corporations Act 2001 (Cth) allows for a new, simpler process for the restructuring or liquidation of companies with total liabilities of less than $1,000,000, and extend to small businesses who are currently in the restructuring process. The amendment also provides for the temporary relief from director’s duties to prevent insolvent trading.

Small businesses that are eligible for the restructuring relief are required to make a declaration posted to ASIC published notices within the eligibility period, which will provide protection for 3 months (with a possibility of extending for a further month).

Due to this new reform, the provisions amending statutory demands and winding up proceedings have not reverted back for eligible businesses who have made a declaration, and will remain in place until at least 31 March 2021.

However, for corporations that do not meet the requirements for the restructuring relief or have not made a declaration, the protections have been lifted as of 1 January 2021 and reverted back to the pre-COVID-19 provisions, being:

  1. Corporations will have 21 days to respond to statutory demands; and

  2. The threshold debt amount to issue a statutory demand is $2,000.

For more details and support regarding these updated Insolvency Laws, please call our office on 02 9922 4111


Article written by Madeline Quinn | Paralegal

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