Regulations will be made to extend the temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive.

The changes will also extend the temporary relief for directors from any personal liability for trading while insolvent.

“These changes will [help prevent] a further wave of failures before businesses have had the opportunity to recover,” Treasurer Josh Frydenberg said.

“The extension of these measures will lessen the threat of actions that could unnecessarily push businesses into insolvency and external administration at a time when they continue to be impacted by health restrictions.

“As the economy starts to recover, it will be critical that distressed businesses have the necessary flexibility to restructure or to wind down their operations in an orderly manner.”

Insolvency leaders believe a straightforward extension is less than ideal, and will create larger problems down the track when these companies are eventually forced to close up shop.

“The overwhelming response of the restructuring and insolvency profession has been that this is just kicking the tin down the road or, more likely, creating a real snowball effect,” Australian Restructuring Insolvency and Turnaround Association chief executive John Winter stated.

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“The fundamental problem is that what this is doing is transferring the harm from bad businesses to perfectly good businesses. Those good businesses, ones that we desperately need to help drive any economic recovery out of COVID-19, are rightly still expecting to be paid as creditors.”

These measures were part of more than 80 temporary regulatory changes the government made designed to provide greater flexibility for businesses and individuals to operate during the coronavirus crisis. 

These changes will help prevent a further wave of failures before businesses have had the opportunity to recover.