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New insolvency laws to protect small business

Small business owner in brewery

The temporary changes will give businesses more time to restructure

The Federal Government has made important, temporary changes to insolvency laws to give directors of struggling small businesses more time to consider restructuring their debts while remaining in control of the business.

The changes came into effect on 1 January 2021 and eligible businesses will need to apply for relief before 31 March 2021.

The reforms apply to small businesses that have liabilities of less than $1 million. Eligible businesses must be incorporated (structured as a company). They do not apply if you are a sole trader or in a partnership.

The temporary relief includes:

  • An increase from $2,000 to $20,000 in the size of a debt for which a creditor can issue a statutory demand for payment.
  • An increase from 21 days to 6 months in the time a small business has to respond to a statutory demand from a creditor.
  • A temporary safe harbour for director(s) from any personal liability for trading insolvent during the period of relief.

There are no direct fees for accessing the temporary restructuring relief, however directors may incur other fees through the process, such as the cost of independent legal advice.

To understand if your small businesses is eligible for relief, further information can be found on the ASIC website. Documents relating to temporary restructuring relief can be found here.

If you are concerned that your business may be in financial hardship, the NSW Government, through Business Connect, has experts available to give you professional advice.

The Australia Tax Office has also created a business viability assessment tool to help you understand your business’s financial position and performance. The tool is free to use and will not store any of the personal information you have inputted.

If you think your business may be trading insolvent, it is important that you seek independent advice to understand your position and the viability of your business.


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