As part of its COVID-19 economic response package, the Federal Government recently introduced a temporary ‘safe harbour’ for directors from personal liability for a company’s insolvent trading, which will apply for a period of six months from 25 March 2020.

The global economy has suffered a massive hit from the COVID-19 pandemic. The collective impact of disruptions to supply chains and falling consumer demand have caused many businesses to suffer varying degrees of financial stress with some having to recapitalise or refinance. Mergers and acquisitions (M&A) activity has been brought to a virtual standstill with many deals halted or delayed.

The global economy has suffered a massive hit from the COVID-19 pandemic. The collective impact of disruptions to supply chains and falling consumer demand have caused many businesses to suffer varying degrees of financial stress with some having to recapitalise or refinance. While some M&A transactions on foot prior to the onset of the pandemic have been disrupted or delayed, the impact of the pandemic will open up opportunities for cashed-up funds and other buyers to, in time, take advantage of strategic and investment opportunities presented by the pandemic.

A voluntary administrator is often appointed by the company. The directors have a role in selecting the administrator; often the referral will come through one of the company’s advisers, such as the accountant or lawyer.

This quick guide summarises the duties that directors of companies incorporated in Australia are subject to, and how those duties change when a company is insolvent or at risk of being insolvent.

It also gives an overview of the personal risk to directors when a company is in financial difficulty.

This note is intended as an overview and should not be relied on as legal advice. Should you require legal advice in relation to your specific circumstances, please contact the Restructuring & Insolvency team member whose contact details are at the end of this note.

In our 25 March 2020 Alert titled COVID-19 Insolvency Update: Temporary Relief for Financially Distressed Businesses we highlighted the then proposed urgent amendments to the Corporations Act 2001 (Cth) (Corporations Act) and the Bankruptcy Act 1966 (Cth), which the Federal Government was has now passed into law, to provide temporary relief to individuals a

This week’s TGIF considers the decision in Aardwolf Industries LLC v Riad Tayeh [2020] NSWSC 299, in which the Supreme Court of New South Wales refused an application for leave to sue court-appointed liquidators for damages for negligence and misleading and deceptive conduct.

Background

Personal bankruptcy can significantly impact a family law matter and it is important that parties are aware of the potential consequences. By way of general summary only:

What are the implications of bankruptcy?

If you or your former spouse / former de facto partner become bankrupt:

In what has been Australia’s largest corporate scalp in the wake of the COVID-19 pandemic, Virgin Australia has appointed partners from Deloitte as voluntary administrators. The decision to appoint administrators reportedly arose from the Federal government’s refusal to inject $1.4b as part of a recapitalisation proposal.

On 15 April 2020, the Federal Court provided the Administrators of Colette with relief from personal liability with respect to the company’s lease obligations.

Colette entered administration in February 2020, prior to the Coronavirus pandemic in Australia. In early March 2020, Administrators noticed sales had begun to substantially decline which had resulted in the company operating at a loss. The decline in sales dropped even further following the Government’s announcements regarding social isolation measures.