On 1 January 2021 the Australian Government’s moratorium on insolvency to provide temporary relief for debtors ceased. The moratorium allowed companies and small businesses to survive the economic impact of COVID-19 by increasing thresholds and response times to statutory demands and bankruptcy notices.

With creditor’s hands tied, the Australian Securities and Investments Commission (ASIC) reported a record low business bankruptcy figures for 2020. Only 946 bankruptcies were recorded for the September 2020 quarter, compared to the quarterly average of 2,367 in previous years. Despite these figures portraying a positive economic outlook, the long-term effects may tell a different story.

As of 1 January 2021, the following amendments remain in place with respect to bankruptcy:

• The minimum debt amount to trigger a bankruptcy event decreased from $20,000.00 to $10,000.00 ($5,000.00 prior to the moratorium);
• The time provided to respond to a bankruptcy notice reset to 21 days from 6 months; and
• protection from creditors (relief period) reset to 21 days from 6 months. 

Creditors will also be able to issue and pursue corporate debtors by way of statutory demands for debts of at least $2,000.00, in contrast to the higher moratorium threshold of $20,000.00. The time to respond to statutory demands has also reset to 21 days from 6 months.

This means that if you have been served with a statutory demand or bankruptcy notice after 1 January 2021, you will not be afforded the same relief you may have relied upon between March and December 2020. It’s business as usual.

As 2021 unfolds, insolvency numbers are likely to increase. It is important for businesses (small and large) to carefully manage cashflow, spend cautiously and prepare for all possibilities. Maintaining a realistic view of Australia’s economic climate and sourcing sound financial advice is perhaps more important than ever.

If you are a creditor or debtor, whether corporate, partnership or individual, and you would like to discuss viable options available to you, or any other insolvency matters, please do not hesitate to contact our team.