Liquidation grace period extension likely

Rules designed to save thousands of companies from going into administration during the coronavirus pandemic are likely to be extended.

The insolvency grace period is set to expire in less than 30 days.

But as Australia suffers its worst economic contraction since the 1930s, plunging the country deep into recession, Treasurer Josh Frydenberg is rethinking the deadline.

“They were temporary changes and we are considering an extension of those arrangements,” he told reporters in Canberra on Wednesday.

“There are about 80 separate regulatory changes we put in place. We’re looking at extending a number of these in light of the fact the COVID-19 recovery is still under way.”

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

The Australian Securities and Investments Commission is taking it easy on companies as they struggle with the downturn caused by the pandemic.

In the last two quarters of 2019, there were 3912 external administrations started, while in the first six months of this year 2932 companies entered external administration.

ASIC deputy chairman Daniel Crennan expects the number of external administrations to increase significantly once the grace period ends.

Appearing before a parliamentary committee last week, he said the number would likely eclipse the ordinary volume of unfunded liquidations.

The Australian Institute of Company Directors has called for the grace period to be extended until the end of this year.

It also wants an extension of temporary relief for directors from any personal liability for trading while insolvent.

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