Temporary relief measures for businesses in financial distress were due to expire in less than 30 days.
Treasurer Josh Frydenberg and Industrial Relations Minister Christian Porter confirmed the insolvency and bankruptcy protections will remain in place until December 31.
They are also extending relief from company 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 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.
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