The Coronavirus Economic Response Package Omnibus Act 2020 (Act) is now law. The Act includes temporary amendments (which started on 25 March 2020 and will continue for a period of 6 months from that date) to the Corporations Act and Bankruptcy Act to assist businesses and individuals navigate through this period.
A summary of the amendments are as follows:
For corporations:
- The minimum threshold (“statutory minimum”) for creditors to issue a statutory demand on a company will be increased from $2,000 to $20,000.
- The statutory time frame for a company to respond to a statutory demand will be extended from 21 days to 6 months.
For individuals:
- The minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor will be increased from $5,000 to $20,000.
- The time a debtor has to respond to a bankruptcy notice will be increased from 21 days to 6 months.
Safe harbour: The Act also includes a new safe harbour provision so that directors of a company that incurs a debt while the company is insolvent (or the company becomes insolvent as a result of incurring the debt) will not contravene the Corporations Act (and those directors will not contravene their personal duty to avoid insolvent trading). This safe harbour is provided on the condition that the debt is incurred in the ordinary course of the company’s business during the 6 month period commencing 25 March 2020. The explanatory memorandum to the Act suggests that a director is taken to incur a debt in the ordinary course of business if it is necessary to facilitate the continuation of the business during this six month period, which could include, for example, a director taking out a loan to move some business operations online or debts incurred through continuing to pay employees during the Coronavirus pandemic. Please be aware that the Corporations Regulations may stipulate circumstances when this safe harbour will not apply. However, the relevant updates to the Corporations Regulations have not yet been published.