Federal government considers extending COVID-19 insolvency protections

The Morrison government is considering whether to extend a range of insolvency protections for businesses hit hard by the COVID-19 pandemic.

Treasurer Josh Frydenberg confirmed cabinet was considering extending rules that absolve directors of personal liability for trading while insolvent and increase the debt thresholds for pursuing statutory demands.

Frydenberg said there were more than 80 separate regulations the government had adjusted, delayed or deferred to support businesses in response to the COVID-19 pandemic, but did not provide any detail on which measures may be extended beyond September 25.

It came as Australia officially fell into its first recession in almost 30 years on Wednesday, with thousands of SMEs across the country doing it tough as household spending plummets in response to public health restrictions.

The Australian reported last week the government was running the ruler over a potential plan to introduce some form of bankruptcy protection for SMEs beyond September, but Wednesday’s comments were the first time the Treasurer confirmed an extension was being actively considered.

A possible extension of insolvency measures will upset the credit industry though, which has campaigned against any further protections for businesses, arguing creditors were being left in the lurch, unable to call in debts.

CreditorWatch, in partnership with the Australian Restructuring Insolvency & Turnaround Association, launched a white paper earlier this week making the case for ending the safe harbour rules.

“The federal government’s measures to cushion COVID’s blow on the economy by providing short-term leniency towards otherwise solvent businesses that were immediately affected by shutdowns introduced at the start of the pandemic were well-intentioned,” the white paper says.

“But they have produced serious and unintended consequences. If they are extended, they risk causing avoidable harm to the Australian economy.”

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