Directors will soon be free to make decisions to trade on even insolvent entities, and incur debts in the ordinary course of business, with the passing of the Coronavirus Economic Response Package Omnibus Act 2020 last night and Royal Assent today. The Act is intended to encourage business to continue trading free of risk that insolvent trading laws – which prevent directors of insolvent companies incurring fresh debt – would impose a personal civil and criminal liability on them. There are also changes to statutory demands and debtor's petitions.
The Coronavirus Economic Response Package Omnibus Bill 2020 (Coronavirus Response Bill) was passed on 23 March 2020 and received Royal Assent on 24 March 2020 following the Federal Government’s announcements made between 12 and 22 March 2020 of its economic response to the spread of the coronavirus pandemic.
The Coronavirus Response Bill provides, amongst other legislative amendments, for temporary changes of 6 months’ duration to Australian insolvency and corporations laws to assist in managing the sudden economic shock resulting from COVID-19.
As part of its economic response to the COVID-19 pandemic, yesterday the Government passed a ‘temporary safe harbour’ insolvency measure[1].
The Australian Parliament has passed legislation granting temporary relief for businesses from statutory demands and liability for insolvent trading. Individuals will also be granted temporary relief in relation to bankruptcy notices.
Introduction
The Australian Parliament has passed a suite of temporary insolvency measures to combat the economic impacts of coronavirus. The changes, which are expected to come into effect shortly, will provide temporary relief from statutory demands and liability for insolvent trading.
On Sunday morning, the Prime Minister and Treasurer announced further measures to assist struggling Australian companies in dealing with the COVID-19 outbreak including temporary changes to the Statutory Demand regime and the prohibitions on insolvent trading in the Corporations Act. While these changes may bring comfort to struggling companies and their employees, the changes will also materially increase the risks to anyone doing business with them.
Before the proposed changes:
In an unprecedented move the Federal Government has announced temporary changes to some aspects of existing insolvency laws as part of the plan to try and keep businesses operating during this unique health crisis time.
Insolvent Trading
The Federal Government yesterday announced a package of temporary measures to assist financially distressed companies. The package is intended to allow distressed businesses (and individuals) time to weather the uncertain storm of Covid-19 and resume normal business once the immediate crisis is over.
Each element of the package will apply (at this stage) for 6 months.
Statutory demands and bankruptcy notices are powerful tools used by businesses seeking payment. For 6 months they will be much weaker. What options remain?
The Government has announced proposed changes to personal and corporate insolvency laws to provide temporary relief to debtors in connection with compulsory insolvency processes.
Changes to statutory demands and bankruptcy notices
The Australian Government has passed the "Coronavirus Economic Response Package Omnibus Bill 2020". The new legislation was announced on Sunday 22 March 2020 and was fast tracked through parliament as part of the Australian Government's response to the economic impact of COVID-19.
The severe restrictions imposed by State and Federal Governments on large gatherings due to the COVID-19 pandemic are inhibiting, and in some cases preventing, businesses from trading. Although the present circumstances may necessitate administration or lead to receivership for some businesses, many practitioners are wary of accepting an appointment where there is an inability to trade as a going concern, thereby preserving value and maximising sale prospects.