Govt Extends Business Liquidation Grace Period

The Federal Government has extended the temporary relief measures introduced to save businesses from going under during the coronavirus pandemic. Due to expire on 21 September 2020, the insolvency and bankruptcy “grace period” is being extended until the end of the year.

In a joint media release, Josh Frydenberg Federal Treasurer, and Christian Porter, Attorney General and Minister for Industrial Relations, confirmed the protections will remain in place until 31 December 2020. The changes will also extend the temporary relief for directors from any personal liability for trading while insolvent.

 “These changes will help to prevent a further wave of failures before businesses have had the opportunity to recover,” the pair said in a statement.

“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.

“The government will continue to help businesses successfully adapt and restructure so that they can bounce back on the other side of this crisis.”

The corporate watchdog is bracing for a large number of companies to go into administration once the grace period is lifted.

The extension of the ‘grace period” was also hot on the heels of the release of the Australian Bureau of Statistics (ABS) Business Impacts of COVID-19 Survey, which found that more than a third (35%) of Australian businesses expect to find it difficult or very difficult to meet financial commitments over the next three months. 

The ABS reported that “41 per cent of businesses reported that revenue had fallen over the last month and 22 per cent had an increase in operating expenses”, with small businesses were almost twice as likely to report that they expected to find it difficult or very difficult compared to large businesses.

The insolvency relief measures (together with more than 80 temporary regulatory relief measures and stimulus initiatives such as JobKeeper and the National Cabinet Mandatory Code of Conduct for tenants) have been implemented to supported businesses that have been forced to temporarily shut down or “hibernate” as a result of the COVID-19 restrictions and ‘lockdowns’ by State Governments.  

Neil Parker, MD of Bridgepoint Group commented on the liquidation grace period extension offered by the Government.

“Whilst the extension of the temporary relief for Directors gives a business a longer runway of opportunity (and that can only be a good thing), it does not in itself solve any underlying issues besetting your business specifically nor the economy generally. So, whilst it may allow you to get some oxygen into your lungs, 3 months isn’t a long time. So pretty quickly your thinking needs to move to how you are going to climb out of the water. The sooner that planning piece is addressed, the better.”

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