Insolvency & Restructuring Alert: COVID Update on Bankruptcy Notice and Statutory Demands

Walter MacCallum, Nahum Ayliffe, Joe Denina and Kailee Shurmer

In March 2020 the Australian Government announced a series of amendments to the insolvency and bankruptcy laws as part of the wider economic response to the COVID-19 pandemic.

Those amendments were initially scheduled to end on 25 September 2020 and were then extended until 31 December 2020 to allow further breathing space for debtors.

On 1 January 2021 those amendments came to an end however most of these ameliorating changes have been kept, while some altered – possibly for the long term.

Corporate Debtors and Statutory Demands

Under the Coronavirus Economic Response Package Omnibus Act 2020 (Cth);

  • For a creditor to issue a Statutory Demand, the amount that must be owed to a creditor was increased from $2,000 to $20,000; and
  • the time a debtor had to respond to a statutory demand was also increased from 21 days to 6 months.

As of 1 January 2021, these changes have completely reverted to the pre-COVID requirements of $2,000 and 21 days. From 1 January 2021, we expect to see a large increase in Statutory Demands being issued by creditors as the old requirements are re-instated.

Individuals and Bankruptcy Notices

In March 2020 the Federal Government also announced a number of temporary COVID-19 based amendments to bankruptcy laws.

Those temporary amendments included the following:

  • increasing the threshold by which creditors are able to apply for a bankruptcy notice from $5,000 to $20,000; and
  • an increase to the timeframe within which debtors must respond to a bankruptcy notice from 21 days to 6 months (keeping in line with the timelines for Statutory Demands).

From 1 January 2021 the position is:

  • the threshold by which creditors are able to apply for a bankruptcy notice has been reduced from $20,000 to $10,000 - an increase of the pre-COVID-19 amount from $5,000 to $10,000;
  • the time an individual has to respond to a Bankruptcy Notice has reverted to 21 days.

The re-setting of the minimum threshold to $10,000 is interesting – particularly in light of the complete return to $2,000 threshold for Statutory Demands. It remains to be seen whether the Government will change its position on this in the coming months as JobKeeper payments phase out and many small businesses start to really struggle.

The Federal Government is also currently reviewing a potential reduction to the bankruptcy discharge period from three years to one year with the Federal Attorney-General releasing a discussion paper on 3 December 2020 outlining the potential amendments. A link to the discussion paper can be found here.

How we can help

It is important for businesses and consumers to be aware of their obligations and rights under the ACL. To check whether your business is compliant with the ACL, or for any other consumer law questions, contact Walter MacCallum, Nahum Ayliffe, Joe Denina or a member of our Corporate and Commercial or Dispute Resolution team. 

If you would like to stay up to date with Alerts, news and Insights from our team, you can subscribe to our mailing list here.

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