If the current coronavirus (COVID-19) situation persists, real estate lenders increasingly will be faced with the need to restructure loans in their portfolios. Lenders that held non-performing real estate loans during prior real estate downturns (e.g., 2008, 1990s) have no doubt embarked on the real estate workout process countless times before. However, with the passage of time, the lessons learned by real estate lenders of earlier eras may have faded from memory. Moreover, many of the lenders active in real estate finance today were not even on the scene during prior recessions.

On 24 March 2020, the Coronavirus Economic Response Package Omnibus Bill 2020 received Royal Assent, meaning that the changes proposed in that bill to "lessen the threat of insolvency" for individuals and businesses in the current coronavirus pandemic have now become law. The changes will be in place for a period of six months starting from today and ending on 25 September 2020, unless this grace period is extended in the future.

By way of summary, the legislative changes involve the following measures:

As part of its second stimulus package in response to the developing novel coronavirus pandemic announced on 22 March 2020, the Australian Government has extended a lifeline to individuals and businesses facing financial distress by way of temporary changes to the laws of insolvency. There are four key features of the changes.

1. Temporary changes to creditor's statutory demands laws

As COVID-19 continues to cause widespread economic disruption, the UK government has announced lending measures to support struggling businesses. This alert summarises:

• the measures available;
• key legal considerations for directors hoping to take advantage of new debt; and
• practical steps directors can take to protect themselves from personal liability.

This alert is relevant to directors of disrupted, stressed, and distressed companies who are considering additional borrowing.

What has the government announced?

With the rampant spread of COVID-19 worldwide, there are increasing concerns as to the financial impact of the outbreak. With forced business closures a potential reality, it seems inevitable that the Australian economy is on its way to a recession.

It is therefore critical that directors of companies are fully aware of the extent of their duties and understand what they must do to comply.

On 4 February 2020, the Federal Court of Australia considered the circumstances in which it might be said that a provisional liquidator of a company ought not be appointed as the official liquidator because of an alleged "reasonable apprehension of bias". The issue was ventilated before the Court in the matter of  Frisken (as receiver of Avant Garde Investments Pty Ltd v Cheema [2020] FCA 98.

Appointing a provisional liquidator

Entering into liquidation can be a scary time for any company and its officers, even one which chooses to do so voluntarily. However, the directors, shareholders and creditors of a company entering into liquidation do not have absolute discretion as to who they may appoint as the liquidator of the company. Together, the Corporations Act and common law principles of independence regulate the eligibility of a liquidator to be appointed to a company, and to remain in the appointment.

Overarching eligibility

What makes a contract an unprofitable contract which can be disclaimed by a trustee in bankruptcy without the leave of the Court under section 133(5A) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act)? Can a litigation funding agreement be considered an unprofitable contract when the agreement provides for a significant funder's premium or charge of 80% (85% in the case of an appeal)?

The High Court recently ruled that the general directors’ duties prescribed by sections 171-177 of the Companies Act 2006 (“CA 2006”) (the “General Duties”) continue to apply to directors after their company has entered administration or creditors’ voluntary liquidation (“CVL”). This is notwithstanding that after the appointment of an administrator or liquidator, the ability and rights of directors to control the company are legally and practically curtailed.

Currently, when a UK airline enters insolvency, its operations cease, aeroplanes are grounded and passengers are stranded – in part due to the heavy industry regulation and, in part, because of complex aeroplane financing arrangements. Any operational continuity enabling the repatriation of passengers would be a loss-making activity likely to deplete the amount of money available to the company’s creditors; a result that would be contrary to the aim of UK insolvency processes in general. This starkly contrasts with insolvent U.S. airlines, all of which have been in U.S.