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COVID-19 Insolvent Trading Relief

A director may be liable for insolvent trading if the company incurs a debt whilst it is insolvent, and there were reasonable grounds for suspecting that the company was insolvent at the time.

The Corporations Act 2001 (Cth) was amended in early 2020 to provide a safe harbour for directors in relation to insolvent trading during the pandemic. It meant that a director may have avoided personal liability for insolvent trading if certain criteria were met.

The debt must have been:

  • Incurred in the ordinary course of business
  • During the six month period starting on 25 March 2020
  • Before the appointment of an administrator or liquidator

From 1 January 2021, this protection is only available to eligible companies under measures known as temporary restructuring relief. The regime is complex and requires specialist accounting or legal advice. For more information, please visit Australian Securities and Investments Commission website for further information [link opens in a new window].

The minimum amount for a statutory demand under section 459E of the Corporations Act 2001 (Cth) was increased during the pandemic to $20,000, and the time for responding increased to 6 months. On 1 January 2021, this measure ceased and the minimum amount reverted to $2,000 with 21 days in which to respond.

On 1 July 2021, the minimum amount for a statutory demand was permanently increased to $4 000.

COVID-19 Insolvent Trading Relief  :  Last Revised: Mon May 31st 2021
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.