COVID-19 Bankruptcy and Insolvency: The Omnibus Act and What Remains
So what was and what is the bankruptcy and insolvency laws?
As part of the government’s effort to save the economy during the COVID-19 pandemic, the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (“Omnibus Act”) was enacted from March to 31st December 2020. The Omnibus Act served to amend the Bankruptcy and Corporations Acts and Regulations and, although has run its course, gave rise to wider changes in insolvency law, which now remain in implementation.
COVID-19 Amendments to Bankruptcy Law
The amount for a creditor to apply for a Bankruptcy Notice against a debtor was increased from $5,000 to $20,000, but is now set at $10,000;
The amount in relation of a creditor’s petition which could be brought was increased from $5,000 to $20,000, but has now reverted to $2,000 effective 1st January 2021;
The period for a debtor to comply with a Bankruptcy Notice was increased from 21 days to six months, but currently if a Bankruptcy Notice was applied for before 1st January 2001 but not issued until 1st January 2021 or later, the compliance period will be 21 days;
The protection period for a debtor after making a declaration of intention to present petition was increased from 21 days to six months, and has now reverted to 21 days;
To prevent unsecured creditors from making a recovery action, a temporary debt protection period procedure was increased from 21 days to six months, and has now reverted to 21 days.
COVID-19 Amendments to Insolvency Law
The amount for a creditor to issue a statutory demand was increased from $2,000 to $20,000, but has now reverted to $2,000;
The period for a company to comply with a statutory demand was increased from 21 days to six months, and has now reverted to 21 days;
Temporary relief were added to the Safe Harbour provisions in the Corporations Act 2001 to protect directors from personal liability incurred from insolvent trading – this has now expired.
In addition, further changes to insolvency law were introduced through the passing of the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 on 10th December 2020. While it is beyond the scope of this article to discuss the amendment in detail, it should be noted that the Act introduced two new insolvency processes for companies with liabilities of less than $1,000,000, allowing such entities to continue trading while insolvent instead of moving into administration:
Debt restructuring process allowing a company 20 business days to restructure its debts with the assistance of a small business restructuring practitioner (“SBR Practitioner”);
Simplified liquidation process streamlining creditors’ voluntary winding up. The event triggering the start of winding up must occur on or after 1st January 2021.
More information regarding the new processes will be hashed out in future CMI Legal articles. Stay tuned.