The impact of the COVID-19 crisis and the health-related measures implemented by the government to contain the spread of this deadly virus will unfortunately result in the economy going into recession.

In an article in the Financial Review, the results of a survey of economists revealed that even taking into account all the government’s stimulus and job-saving measures, the Australian economy will be in recession until June 2021.

NON-FISCAL POLICIES TO HELP BUSINESSES OUTLAST THE COVID-19 VIRUS

Mills Oakley is a leading national law firm with offices in Melbourne, Sydney, Brisbane, Canberra and Perth. With over 100 partners and more than 670 staff, we offer strong expertise across all key commercial practice areas.

From origins in Melbourne in 1864, Mills Oakley has grown to become a domestic leader in legal services with a client base of ASX-200 listed companies, mid-sized corporations, the public sector and not-for-profit organisations.

In a recent decision in the Supreme Court of NSW[1], Rees J set aside a liquidator’s bid to publicly examine two senior officers of the National Rugby League (NRL), finding that examination summonses issued by the liquidator were an abuse of process and the entire liquidation process was a contrivance in order to exert commercial pressure on the NRL.

As part of its response to the national emergency arising from the spread of the Coronavirus, the government announced changes to insolvent trading duties in March 2020.

This will assist organisations under pressure to keep going, pay necessary staff and be positioned to return to normal business.

The relevant legislation (Coronavirus Economic Response Package Omibus Act 2020 (Cth) (the Act)) came into effect on 24 March 2020.

Critically, the laws have been softened, not repealed, and other directors’ duties remain in place.

The voluntary administration procedure in the Corporations Act was introduced in 1993. Prior to this, the only formal mechanism for a company to compromise with its creditors was by a creditors’ scheme of arrangement, a process often regarded as costly, time consuming and cumbersome.

The primary objective of voluntary administration is to provide for the business, property and affairs of an insolvent company to be administered in a way that:

In challenging financial times, a company director’s role is fraught with difficult decisions regarding continued operations and the preservation of the business. These decisions may be influenced by the risk of personal liability to the director.

Outlined in, Directors’ Duties in Uncertain Financial Times, we canvassed the issues facing a director when the company’s financial viability comes into question.

On the evening of Monday 23 March, 2020, the Australian Federal Government passed a broad range of stimulus measures under the Coronavirus Economic Response Package that is said to come into force immediately. The Coronavirus Economic Response Package is a temporary (six-month) relief package to combat the economic impacts of the coronavirus disease 2019 (COVID-19) outbreak and to provide public health measures to prevent its spread.

Summary

On 23 March 2020, the Federal Parliament passed the Coronavirus Economic Response Package Omnibus Bill 2020 (the COVID Act).

The COVID Act received Royal Assent on 24 March 2020 which amended, amongst other things, the Corporations Act 2001, the Bankruptcy Act 1966 and the Bankruptcy Regulations 1996 to temporarily release directors from a risk of personal liability for insolvent trading, as well as increase the minimum amount and time-frame for both statutory demands and bankruptcy notices.

While there is some relief for Victoria and Northern Territory associations, all associations should be aware of penalties that may apply in their own State or Territory. Registered charities must still ensure their Committee members do not allow the charity to operate while it is insolvent.