Directors will soon be free to make decisions to trade on even insolvent entities, and incur debts in the ordinary course of business, with the passing of the Coronavirus Economic Response Package Omnibus Act 2020 last night and Royal Assent today. The Act is intended to encourage business to continue trading free of risk that insolvent trading laws – which prevent directors of insolvent companies incurring fresh debt – would impose a personal civil and criminal liability on them. There are also changes to statutory demands and debtor's petitions.
Get your 5 Minute Fix of major projects and construction news. This issue: discover the latest cladding developments; resources construction work now caught by WA training levy; mind the gap: public transport at the urban fringe; avoid slip-ups in your payment schedule; and the availability of insolvency processes under the Corporations Act 2001 for recovering SOP debts.
Cladding update ‒ NSW
The updates to the Guidance Note provide useful guidance on disclosure requirements in the context of the safe harbour reforms but ultimately, the status quo continues.
The ASX has updated its continuous disclosure guidance for entities in financial distress to address uncertainty following the recent introduction of the insolvent trading safe harbour provisions into the Corporations Act. While the ASX has provided useful guidance, unsurprisingly, the position has not changed and directors must continually assess compliance with continuous disclosure requirements.
Particularly in smaller external administrations, the court will not blindly accept time-based remuneration as reflecting the value of the work, but will consider the proportionality of the remuneration.
In a number of recent judgments, the courts appear to be favouring considerations of proportionality coupled with an assessment of the realisations achieved when assessing application for the approval of remuneration for external administrators.
There's been a drop-off, but Peter Bowden says things might be about to change.
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Key Points:
The NSW Supreme Court says it can provide directions on an administrator's commercial decision on the basis of the liability assumed by administrators and their partners.
On 17 October 2012, Nine Entertainment announced that it had reached an agreement with representatives of its senior and junior lenders with respect to a restructuring of its financing arrangements. Prior to the announcement, recent business press had been dominated by reports of Nine Entertainment's potential insolvency.
Key Points: The fact that you're a very big company doesn't mean you needn't follow the legal rules for the execution of documents.
Background
A large insurance company claimed to be a creditor of Ungul, a property developer. Ungul was in voluntary administration.
A meeting of Ungul's creditors was called for 11 June. The insurance company's solicitors contacted the administrator and said that:
Our research shows rescue financing in Australia has been deployed as one element of a broader restructuring strategy, most commonly by an existing stakeholder, rather than as a profitable activity in itself.
ASIC is becoming more serious and more active and will take action against directors if there is su cient reason to, so insolvency practitioners should consider all possible actions/recoveries fully in any report to ASIC.
A company's financial distress presents a challenge for its directors and officers of large and complex financial services companies and can raise a range of difficult issues, including potential liability for insolvent trading, which potentially exposes directors both to civil and criminal consequences under the Corporations Act 2001(Cth).