COVID-19 economic response: insolvency laws

As part of the government economical response to the COVID-19 effects, there have been temporary measures introduced effective as of 25 March 2020 that alter the laws in relation to insolvency and personal bankruptcy in Australia through the Coronavirus Economic Response Package Omnibus Act 2020 (Cth). The purpose of these measures is to deliver relief to businesses and individuals that are inevitably economical effected by the events of the pandemic.

Despite the need for relief, these changes temporarily remove many of the usual deterrents preventing businesses leaving debts unpaid for too long.  Debtors should understand the changes, options and their rights. Combined with the general economic downturn, creditors should take extra precautions during this period to secure payments.


Bankruptcy refers to the outcome of a legal process where an individual is unable to pay their debts when due. The bankruptcy process can release an individual, unable to pay, from most of their debts. Bankruptcy generally continues for a period of three (3) years.

A creditor may apply for a bankruptcy notice to issue to an individual based on a final judgement or order. For these bankruptcy notices issued after 25 March 2020, and continuing to be in effect for six (6) months, the new measures state that the threshold debt amount to initiate bankruptcy proceedings has been increased from $5,000.00 to $20,000.00. The individual will also now have a period of six (6) months instead of 21 days to respond to the bankruptcy notice.  

A person may apply for temporary debt protection when presenting a declaration of intention (DOI) to petition for bankruptcy. The temporary debt protection period is also extended from 21 days to six (6) months. This means that unsecured creditors cannot take any enforcement action for up to six (6) months against the individual for unsecured debts. This does not apply to debts such as HELP debt, child support or fines by the Courts.

Corporate Insolvency

Amendments implemented into the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 (Cth) have varied several corporate insolvency rules as well. Statutory Demands are issued by creditors to businesses where there is an undisputed debt of at least $2,000.00. This Demand, if not paid or otherwise remedied within 21 days, can be taken as a presumption of insolvency and may be used to apply for winding up of the company.

The minimum threshold for serving this Demand has now temporarily changed from $2,000.00 to $20,000.00 as of 25 March 2020. Companies also now have six (6) months instead of 21 days to respond to the Demand. This effectively means that creditors who have issued Statutory Demands after 25 March 2020 will not be able to commence legal proceedings to wind up the debtor company for half a year.  

Company directors will also be relieved of personal liability for insolvent trading during the 6-month period. This will only apply with respect to debts incurred in the ‘ordinary course of business’ and deemed ‘necessary’ for the continuation of the business. However, this protection for release of personal liability of directors does not apply to companies that were already insolvent before the relevant period.


The purpose of these amendments is to allow companies and individuals time to meet their debts in consideration of the economic impacts from COVID-19. How effective these measures will be in achieving this purpose remains to be seen. It is possible that one outcome from these measures will be protracted insolvent trading and accrual of debt for badly affected businesses. If these measures end in September 2020 and there is no further government intervention, a delayed spike in insolvencies at that time is foreseeable.  

All creditors should take extraordinary steps to secure payments from customers and clients. Debtors should be monitored for unusual payment delays. Now is the time to review payment terms and debt recovery processes.

It is important that companies and individuals are aware of these changes so that they may assess how this may negatively or positively affect them and their enterprise.

Written By

Daniel Dash
Senior Associate
NB Lawyers, the lawyers for employers
[email protected] 
07 3876 5111

Assisted by:

Zahra Rashedi


NB Lawyers, the lawyers for employers

[email protected]

About the Authors

Daniel Dash and Zahra Rashedi are part of the commercial law team at NB Lawyers, the lawyers for employers working with individuals and business owners on a range of matters including business sales, property disputes, estate disputes, commercial contract advice, shareholder agreements, intellectual property, litigation and taxation matters.