The COVID-19 pandemic has presented a fundamental shift to the way we do everyday business.

As part of the Australian government’s response to the pandemic, several temporary changes to insolvency and bankruptcy laws have been introduced.

The changes aim to provide businesses with a safety net during these challenging times where the trading ability of many businesses is significantly affected.

Importantly, these changes are ending on 31 December 2020, meaning many businesses who are currently in a state of hibernation should start making the appropriate arrangements for when the laws revert back to normal.

The following changes apply for the period of 25 March 2020 to 31 December 2020:

  1. Statutory Demands Against Companies

Issuing a statutory demand is a way for a creditor to take action to wind-up/liquidate a company. Once a creditor’s statutory demand expires, and provided the debt is not paid or no genuine dispute about the debt exists, the debtor-company is deemed to be insolvent. The creditor can then commence court proceedings to wind up the company.

Under the new measures:

  • the minimum debt to issue a statutory demand has been increased from $2,000 to $20,000; and
  • the company’s time to pay/respond to the statutory demand has increased from 21 days to 6 months.
  1. Director’s Personal Liability for Insolvent Trading

Directors have a duty not to allow a company to trade whilst insolvent. Insolvent trading means a company which trades when it cannot pay its debts when and as they become due and payable. If a company director allows a company to trade whilst insolvent, then there is the potential for that director to be personally liable for a debt of the company.

Under the new measures, if a company incurs a debt in the ordinary course of its business, a director will no longer risk personal liability for allowing the company to trade whilst insolvent. This gives companies the confidence to trade through the pandemic in circumstances where a company director may have previously faced personal liability for the debts incurred by a company.

Despite the new measures, directors must continue to fulfil their existing legal duties such as to act in the best interests of a company. They must also be mindful that cases of dishonesty and fraud will still be subject to criminal penalties.

The new rules will not apply to company debts incurred before 25 March 2020.

  1. Bankruptcy Notices Against Individuals

Issuing a bankruptcy notice allows a creditor to take steps to bankrupt an individual/person. Once a bankruptcy notice expires, the creditor can commence court proceedings to seek a sequestration order to bankrupt that person.

Under the new measures:

  • the minimum debt to issue a bankruptcy notice has been increased from $5,000 to $20,000; and
  • the person’s time to pay/respond to the bankruptcy notice has increased from 21 days to 6 months.
  1. Person’s Intention to go Bankrupt

Under the Bankruptcy Act 1966 (Cth), an individual/person can lodge a ‘Declaration of Intention’ to present a debtor’s petition with the Australian Financial Security Authority (AFSA) to temporarily restrain creditors taking further action. This allows the person to make arrangements with their creditors, and if not successful, proceed to declare themselves bankrupt.

Under the new measures, the period of restraint has increased from 21 days to 6 months.


From a creditor’s perspective of intending to use a statutory demand as a debt recovery mechanism, the temporary measures have presented major obstacles. From a debtor’s perspective, the measures provide a temporary reprieve for the payment of debts and the severe consequences for non-compliance with a creditor’s statutory demand.

Whilst the measures will importantly not prevent a creditor from initiating court proceedings for recovery of a debt, the ability to use a statutory demand as a debt recovery tactic has been significantly altered.

The new measures mean that creditors and debtors should endeavour to explore non-litigious avenues by working together to explore and negotiate alternative arrangements such as payment plans. We have seen many businesses move to an upfront or ‘cash on delivery’ payment system, replacing previous deferred payment arrangements.

The 31 December 2020 end date of the suspension period is fast approaching. Whilst the end date has already been extended once before by the government, there is no guarantee it will be extended again.

Unfortunately for many businesses, it is no longer “business as usual”. The team at Salerno Law are ready to provide you with advice and guidance to assist you with your business’ solvency issues or debt recovery actions during this challenging time.

Our team works closely with specialist insolvency accountants to ensure that your circumstances are assessed from all relevant perspectives. By working alongside other professionals, we can provide you with the most commercially practicable advice suited to your particular circumstances.

We are here to help. Speak to us today.


By Luke McKavanagh  

Luke is part of Salerno Law’s commercial and business law team. His days involve providing advice on a wide variety of commercial issues that arise in operating small to medium businesses, where he assists clients who are growing their business or wanting to protect what they’ve established.


DISCLAIMER: This article is only meant to give you general information and should not be relied on as legal advice. Speak to one of our lawyers for more information.