Alternative Option for Creditors – Impact of the “temporary insolvency and bankruptcy protections” under the Coronavirus Economic Response Package Omnibus Act 2020 (Cth)

The Commonwealth Government’s extension until 31 December 2020 of its “temporary insolvency and bankruptcy protections” has deep impact on businesses and commercial life in Australia.

That extension continues the restrictions imposed on creditors in their ability to utilise the benefits and efficiencies of Creditor’s Statutory Demands (CSD) under the Corporations Act and Bankruptcy Notices under the Bankruptcy Act.

The Commonwealth Government’s Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (CEARPO Act) temporarily amends the Corporations Act 2001 (Cth) and the Bankruptcy Act 1966 (Cth) and the respective Regulations.

The CEARPO Act amendments mean that if a creditor serves a CSD or Bankruptcy Notice on a debtor on or before 31 December 2020, they must give the debtor six months from the date of service of the CSD or the Bankruptcy Notice to pay the due and payable debt which must be more than of $20,000, a continued extension from the normal 21 days to pay and a threshold of $2,000 with respect to a CSD and $5,000 with respect to a Bankruptcy Notice, or reach an agreement with the creditor about the payment of that debt.

The effect of those extensions is that small to medium enterprise businesses must now effectively either not extend credit terms to a small to medium enterprise contractual party or be prepared to be exposed to more than $20,000 for at least 6 months before they can avail themselves of the CSD or Bankruptcy Notice options.

It is unlikely that small to medium businesses will be able to continue to carry bad debts of $20,000 or more thereby “propping up” the economy and avoiding the commercial realties of the effect of either the COVID-19 pandemic or, in some circumstances, otherwise insolvent businesses without action being taken to ensure the continuing survival of small to medium enterprise.

Small to medium enterprises account for a substantial majority of Australia’s business community and approximately 99% of all commercial employees.

The CEARPO Act and the “temporary insolvency and bankruptcy protections”, however, do not alter a creditor’s ability to seek and obtain a Court judgment against debtors for the payment of debts regardless of their size and duration.  Depending on the circumstances, a judgment for an undisputed debt can usually be obtained in less than six months.  Therefore, creditors should carefully consider their debt exposure and the means available to them to be paid outstanding debts.

The “temporary insolvency and bankruptcy protections” under the CEARPO Act also do not impact on a creditor’s rights to enforce their judgment debt under the Civil Judgments Enforcement Act 2004 (WA) (CJEA), such as by way of a Property (Seizure and Sale) Order, Debt Appropriation Order or other similar enforcement order.

Creditors are not without options.

And, please remember some of the “debtor” or troubled company “safe harbour” provisions only apply if impacted by certain effects of the COVID-19 pandemic.

At Kott Gunning we have continued to understand the legal and regulatory responses to the COVID-19 pandemic and how it continues to impact our clients, directors, creditors, debtors and businesses generally.

We can help by advising you about:

  • the best courses of action available to recover unpaid debt;
  • the appropriate Court and the Court process;
  • judgment debt enforcement options;
  • the “safe harbour” provisions; and
  • the law and options available under it as caused by the response to the COVID-19 pandemic.

You are not without options.

Please contact us with your personal enquiry, we can help.

Emma Leys – Partner –

Peter Mariotto – Special Counsel –

The information published in this article is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.