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Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020

Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020

Administered by Department of the Treasury

Legislation au F2020L01191 Regulations Not in force Legislative Instrument

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EXPLANATORY STATEMENT

Issued by authority of the Treasurer

Corporations Act 2001

Bankruptcy Act 1966

Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020

Section 1364 of the Corporations Act 2001 and section 315 of the Bankruptcy Act 1966 (the Acts) provide that the Governor-General may make regulations prescribing matters required or permitted by the respective Acts to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Acts.

The purpose of the Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020 (the Regulations) is to extend measures expressed in Schedule 12 to the Coronavirus Economic Response Package Omnibus Act 2020 beyond their initial six month application period so that they apply until the end of 31 December 2020.

As a result of the ongoing economic impacts of the Coronavirus, a significant number of Australian companies and individuals will continue to experience financial distress and be at risk of insolvency.

The amendments made by the Regulations continue to provide businesses and individuals with a safety net by lessening the threat of actions that could unnecessarily push them into external administration or bankruptcy. The amendments do this by helping businesses continue to operate during a temporary period of illiquidity, rather than entering voluntary administration or liquidation, and assisting individuals to manage debt and avoid bankruptcy.

This will enable more businesses and individuals to continue trading productively, provide ongoing employment and resume normal business operations once the crisis has passed.

Public consultation did not occur given the need to respond to urgent and unforeseen events.

Details of the Regulations are set out in Attachment A.

The Regulations are a legislative instrument for the purposes of the Legislation Act 2003.

The Regulations commenced on the day after it was registered.

The Regulations have a negligible impact on compliance costs.

A statement of Compatibility with Human Rights is at Attachment B.

ATTACHMENT A

Details of the Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020

Section 1 – Name of the Regulations

Section 1 provides that the name of the Regulations is the Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020 (the Regulations).

Section 2 – Commencement

Sections 2 provides that Schedule 1 to the Regulations commences on the day after the instrument is registered on the Federal Register of Legislation.

Section 3 – Authority

Sections 3 states that the Regulations are made under the Corporations Act 2001 and the Bankruptcy Act 1966.

Section 4 – Schedule

Section 4 provides that each instrument that is specified in the Schedules to this instrument will be amended or repealed as set out in the applicable items in the Schedules, and any other item in the Schedules to this instrument has effect according to its terms.l

Schedule 1 – Amendments

Item 1

Regulation 4.02AA of the Bankruptcy Regulations 1996 prescribes a temporary increase to the definition of statutory minimum and statutory period in the Bankruptcy Act 1966.

The statutory minimum is the minimum amount of debt required to be owed before a creditor can initiate involuntary bankruptcy proceedings against a debtor. The statutory period is the timeframe in which a debtor must comply with a bankruptcy notice.

The temporarily increased statutory minimum and statutory period are $20,000 and six months, respectively. Given the temporary nature of these increases, subregulation 4.02AA(3) provided that regulation 4.02AA was to be repealed six months after the day on which it commenced. Accordingly, the regulation was scheduled to be repealed immediately before 25 September 2020.

The amendment made by Item 1 provides that regulation 4.02AA is now repealed at the end of 31 December 2020.

Item 2

Regulation 4.10A of the Bankruptcy Regulations 1996 prescribes a temporary increase to the definition of default period in the Bankruptcy Act 1996.

The default period is the timeframe in which a debtor is protected from enforcement action by a creditor following presentation of a declaration of intention to present a debtor’s petition.

The temporarily increased default period is six months. Given the temporary nature of this increase, subregulation 4.10A(2) provided that regulation 4.10A was to be repealed six months after the day on which it commenced. Accordingly, the regulation was scheduled to be repealed immediately before 25 September 2020.

The amendment made by item 2 provides that regulation 4.10A is now repealed at the end of 31 December 2020.

Item 3

Regulation 5.4.01AA of the Corporations Regulations 2001 prescribes a temporary increase to the definition of statutory minimum and statutory period in the Corporations Act 2001.

The statutory minimum is the minimum amount of debt required to be owed before a creditor can issue a statutory demand on a company. The statutory period is the default period in which a company must comply with a statutory demand.

The temporarily increased statutory minimum and statutory period are $20,000 and six months, respectively. Given the temporary nature of these increases, subregulation 5.4.01AA(3) provided that regulation 5.4.01AA was to be repealed six months after the day on which it commenced. Accordingly, the regulation was scheduled to be repealed immediately before 25 September 2020.

The amendment provided by Item 3 provides that the regulation is now repealed at the end of 31 December 2020.

Item 4

Item 4 inserts Part 5.7B and regulation 5.7B.01 into the Corporations Regulations 2001. Regulation 5.7B.01 prescribes a longer period for the purposes of subparagraph 588GAAA(1)(b)(ii) of the Corporations Act 2001.

Section 588GAAA of the Corporations Act 2001 provides a safe harbour from the director’s duty to prevent insolvent trading. A director may rely on the temporary safe harbour in relation to a debt incurred by the company if, among other things, the debt is incurred during the six month period starting on the day the new law commenced, or a longer period as prescribed by the regulations. Given a longer period was not prescribed by the regulations, the six month period was due to cease immediately before 25 September 2020.

The amendments made by Item 4 provide that the temporary safe harbour now applies until the end of 31 December 2020.

ATTACHMENT B

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals)

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Legislative Instrument

The purpose of the Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020 (the Regulations) is to extend measures expressed in Schedule 12 to the Coronavirus Economic Response Package Omnibus Act 2020 beyond their six month application period so that they apply until the end of 31 December 2020.

The amendments made by the Regulations continue to provide businesses and individuals with a safety net by lessening the threat of actions that could unnecessarily push them into external administration or bankruptcy. This will enable more businesses and individuals to continue trading productively, provide ongoing employment and resume normal business operations once the crisis has passed.

Human rights implications

This Legislative Instrument does not engage any of the applicable rights or freedoms.

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

Overview

The Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020 were introduced to address the continuing economic impacts of the Coronavirus on Australian businesses and individuals. Enacted by the Parliament of Australia under the authority of sections 1364 of the Corporations Act 2001 and 315 of the Bankruptcy Act 1966, these regulations aim to extend temporary relief measures beyond their initial six-month period, applying until the end of 31 December 2020. This extension seeks to provide a continued safety net, protecting financially distressed entities from actions that could lead to unnecessary insolvency, thereby facilitating ongoing business operations and employment opportunities. The urgency of the situation precluded public consultation, and the regulations have a negligible impact on compliance costs. Additionally, the regulations are compatible with human rights, as confirmed by the Statement of Compatibility with Human Rights.

Scope and Application

The Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020 apply to Australian companies and individuals experiencing financial distress due to the ongoing economic impacts of the Coronavirus. These Regulations extend the measures initially introduced by Schedule 12 to the Coronavirus Economic Response Package Omnibus Act 2020, which were set to expire on 24 September 2020, to now apply until 31 December 2020. The primary aim is to provide a continued safety net by reducing the risk of unnecessary insolvency actions, allowing businesses and individuals to sustain operations, retain employment, and resume normal activities once the crisis subsides. This extension is achieved by amending the Bankruptcy Regulations 1996 and the Corporations Regulations 2001 to increase the statutory minimum debt and statutory period for bankruptcy proceedings, and to extend the temporary safe harbour for directors from insolvent trading liability. Public consultation was not conducted due to the urgency of responding to the crisis, and the Regulations are a legislative instrument under the Legislation Act 2003, commencing the day after registration on the Federal Register of Legislation.

Key Provisions

The Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020 (the Regulations) primarily amend the Bankruptcy Regulations 1996 and the Corporations Regulations 2001. These amendments extend the application period of certain measures aimed at providing relief to financially distressed businesses and individuals affected by the COVID-19 pandemic. Specifically, the Regulations extend the temporary increases to the statutory minimum and statutory period for initiating bankruptcy proceedings against individuals and companies from 25 September 2020 to 31 December 2020 (Items 1, 2, and 3). Additionally, the Regulations extend the temporary safe harbour for directors from the duty to prevent insolvent trading from 25 September 2020 to 31 December 2020 (Item 4). The Regulations impose several obligations on parties and entities they govern. Firstly, creditors and companies are required to adhere to the extended statutory minimum and statutory period, meaning they cannot initiate bankruptcy proceedings against individuals or issue statutory demands on companies unless the debt criteria are met. Secondly, directors of companies must continue to rely on the extended safe harbour from the duty to prevent insolvent trading if the debt was incurred during the extended period. These obligations are designed to provide continued relief to financially distressed entities, helping them to remain operational and avoid insolvency during the economic downturn. The Regulations do not explicitly outline specific offences, penalties, or civil and criminal consequences for non-compliance. However, breaching the statutory minimum and statutory period for initiating bankruptcy proceedings or the temporary safe harbour for directors could potentially lead to legal consequences under the Corporations Act 2001 and the Bankruptcy Act 1966. For insolvent trading, directors could face personal liability for debts incurred while the company was insolvent. Similarly, failure to comply with the extended statutory minimum and statutory period might lead to legal actions by creditors. The maximum penalties for insolvent trading can include substantial fines and imprisonment, depending on the severity and intent of the offence.

Area of Law: Corporate Law & Governance; Bankruptcy Law; Emergency Management Law
Instrument: Regulation
Concepts: Commencement Provisions; Repeal & Amendment; Regulatory Standards; Compliance Obligations; Prohibited Conduct

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.

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