Skip to content
tall buildings

COVID-19: Extension of Temporary Insolvency Relief Measures

3 minutes read time

Pursuant to regulations which commenced on 22 September 2020, the Australian Government has extended the temporary insolvency relief measures (which came into force on 25 March 2020 in response to the coronavirus (COVID-19) pandemic) to 31 December 2020. 


On 22 September 2020, the Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020 (Regulations) came into effect.

The Regulations operate to extend the timeframe during which the temporary insolvency relief measures which were originally intended to expire on 25 September 2020, to 31 December 2020.

Accordingly, until 31 December 2020:

Statutory demandsA creditor must be owed a minimum of $20,000 before it can issue a statutory demand to a company, which statutory demand must allow the that debtor company 6 months to respond
Company directors

The special safe harbour provision will continue to relieve company directors from their duty to prevent insolvent trading for debts incurred in the ordinary course of the company’s business (which they would otherwise be liable for under section 588G of the Corporations Act 2001 (Cth) (Act)). This protection is in addition to the safe harbour protection provided under section 588GA of the Act, which is generally available if a company director can establish that they took a course of action reasonably likely to lead to a better outcome for the company.

Bankruptcy notices

A creditor must have a final order or judgment against an individual debtor in the sum of at least $20,000 before they can request a bankruptcy notice to be issued, and the individual will have six months to respond to the bankruptcy notice.

Increase of debtor protection

Individual debtors who present a declaration to the Official Receiver of their intention to present a debtor’s petition will be protected for six months from enforcement actions taken by creditors in respect of certain debts.

What does this mean?

While the extension of these temporary insolvency relief measures is no doubt welcomed by many who may continue to suffer as a result of COVID-19, it remains critical for companies and individuals to carefully monitor their financial position (including their solvency) and seek advice from insolvency or financial professionals where necessary. In particular, while the safe harbour provisions available to company directors will continue to provide a reprieve, it should be noted that these provisions do not alter the obligations imposed on them as directors under the Act, including to act in the best interest of the company.

However, given that the temporary insolvency relief measures afford protection not only to those debtors suffering financial difficulties as a result of COVID-19, but also to companies and individuals who would have become insolvent in any event (therefore, affording them a temporary and artificial shield from the inevitable outcome), there had been calls from industry bodies for these measures not to be extended.

Given the extension, it seems that the inevitable flood of insolvencies and bankruptcies will flow from the expiry of the temporary insolvency relief measures in the New Year, unless further extended.

This content is current as at 24 September 2020.  The speed with which COVID-19 is spreading and the varied responses both internally within Australia and externally change on a daily basis.  It is important that you regularly keep up to date with all relevant information and be prepared to respond as the landscape in which the virus is moving changes.

This Article is intended as general information only. It does not purport to be comprehensive advice or legal advice. Readers must seek professional advice before acting in relation to these matters