Changes to Insolvency law brought on by COVID 19

The Federal Government’s temporary changes to both corporate and personal insolvency law, introduced in March 2020 and extended to 31 December 2020, no longer apply.  In particular, directors should note that the temporary relief for directors during 2020 from the insolvent trading (personal liability) provisions of the Corporations Act 2001 (in the absence of fraudulent conduct) no longer apply.  Directors have a statutory duty to act honestly, with care and diligence, in good faith and for a proper purpose when exercising their powers and discharging their duties as a director.  Recklessness and dishonesty is an offence!

However, significant changes introduced and effective from 1 January 2021 and 1 July 2021 are:

  • In bankruptcy proceedings, from 1 January 2021 the debt threshold (minimum amount owing) upon which creditors can commence bankruptcy proceedings against individual debtors is now $10,000 (increasing from $5,000 prior to the temporary changes applying in 2020),
  • In corporate matters, from 1 July 2021 the debt threshold (minimum amount owing) upon which creditors can commence windings up proceedings against corporate debtors is now $4,000 (increasing from $2,000 prior to and after the temporary changes applying in 2020), and
  • Again, in corporate matters, from 1 January 2021 a Small Business Restructuring (SBR) process was introduced to provide a restructuring process – referred to as a ‘debtor-in-possession’ model i.e. the company itself does the restructuring with assistance from a Small Business Restructuring Practitioner (a Registered Liquidator).  The directors of the company remain in control of the company’s business, property and affairs.

SBR (as referred to immediately above) is available only to a company with liabilities less than $1 million and no director of a company considering SBR must have been a director of another company that has undergone an SBR process, or the company itself must not have undergone an SBR process (or a simplified liquidation process) within the preceding seven years.  Strict timelines apply to the process.  Although the SBR appears well-intentioned legislation, it has not been widely used at all since coming into effect on 1 January 2021.  More information about the process can be gained from the ASIC.  However, we urge directors to very carefully consider the detail and implications of the SBR process before choosing this alternative.  Please do not hesitate to contact us for a confidential discussion in this regard.

Contact us at or phone (08) 8359 2550 to discuss