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27 April

Changes to Director’s Duties in The Corporation Act 2001 due to Covid_19

The government announced on the 22nd March 2020 that they amended the Corporations Act to ensure that businesses had a safety net during these unprecedented times they were facing due to Covid_19. 


Provide businesses with a safety net that when they return to business they may be pushed into insolvency proceedings. 

  1. Temporary increase the statutory minimum threshold by creditors from $2000 to $20,000 and statutory demand period from 21 days to 6 months. 
  2. Temporary relief from director’s personal liability, or in trading while the business is insolvent. 


The changes were as quoted “ To make sure companies had confidence to continue to trade through the Covid_19 virus health crisis would be able to return to viability when the crisis has passed” These were the only relevant changes to The Corporations Act.  


The amendments passed on the 23rd March 2020 by the house of representatives and the senate come into effect on the 25th March 2020 and are only applied to the following six months from the 24th September 2020. 



These amendments do not give a director the license to ignore their duties to the company. 



The amendment to statutory demands only increases the amount that can be pursued along with an  increased time duration to meet that demand, no more, no less. The six months is meant to give a business sufficient time to recover from the impact of the pandemic and be in a position to pay creditors before being wound up. 



The Corporations Act of 588G – States that directors may be personally liable for debts that are incurred when the company is insolvent, or the company becomes insolvent while incurring the debt. Particularly if the director was aware that the company may be trading while insolvent. 

A change was made in 2017 to give directors a “safe harbour defense”. They may implement this safe harbour event should they maintain bookkeeping, paying employees, attaining professional assistance and implementing a clear plan to restructure the company to increase it’s financial position. The new temporary safe harbour amendment for six months sits alongside this provision is Paragraph 588GAAA amendment for a temporary duration for six months. 


This temporary arrangement has placed all small businesses into a temporary safe harbour.


Want to hear more?

Go to the Chartered Accountants Website and register for this complimentary recording

Coronavirus (COVID_19) Know your director’s duties and how to manage them 


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