On Sunday morning, the Prime Minister and Treasurer announced further measures to assist struggling Australian companies in dealing with the COVID-19 outbreak including temporary changes to the Statutory Demand regime and the prohibitions on insolvent trading in the Corporations Act. While these changes may bring comfort to struggling companies and their employees, the changes will also materially increase the risks to anyone doing business with them.

Before the proposed changes:

On 11 December 2019, the NSW Court of Appeal found that an administrator should not have used his casting vote to block a resolution for the appointment of a different person as the company’s liquidator. The decision (Glenfyne International Holding Limited v Glenfyne Farms International AU Pty Ltd (in liq) [2019] NSWCA 304) reverses a previous decision where the Court found that it did not have the power to disturb the result of the vote.

Background

New laws under consideration could expose company directors to jail terms of up to ten years for engaging in ‘Phoenix activity’ – the practice of closing down an enterprise, shifting its assets then re-starting it to avoid creditors.

This is an update to our previous insight article Major short-term changes to Australian insolvency regime which discussed the introduction of Parts 2 and 3 of Schedule 12 (Temporary Measures) to the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (Act) on 23 March 2020.