The government has passed some remarkable reforms to the Bankruptcy Act and the Corporations Act which will make it much harder for creditors to extract their money from debtors.

The following changes apply on and from 25 March 2020 for a period of six months thereafter:

• A debtor has six months to answer a bankruptcy petition instead of the traditional 21 days.  And the minimum debt which can support a debtor’s petition has been increased from $5,000 to $20,000
• The time a company has to answer a statutory demand for payment of a debt under the Corporations Act has been extended from 21 days to six months and the minimum amount for such a demand has been lifted to $20,000.
• Directors can trade while insolvent from 25 March 2020 to 25 September 2020 provided the debts they incur are in the ordinary course of business.

These changes are unprecedented.  While they obviously protect businesses and individuals in genuine need, they will allow unscrupulous individuals to defer payment for the next six months – and to incur debts they have no intention of paying at all.  However, it is important to note that such debts (in the case of companies) must only be incurred in the normal course of business (which may provide some protection to creditors).

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