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.

The COVID-19 pandemic has placed immense strain across the whole of the economy and raises the issue of how company directors should balance their obligations to shareholders and creditors while ensuring that they protect themselves from any personal liability.

Companies and their directors in the following sectors of the economy face difficult decisions:

The new Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (CERPO Act) provides support to businesses and individuals suffering financial distress for at least 6 months from 25 March 2020. Relief has been given to businesses, individuals and directors.

Businesses – Creditors Statutory Demands

Introduction:

The Australian Federal Government announced temporary amendments, effective 24 March 2020, to insolvency and corporations law in response to the challenges that businesses are facing as a result of the COVID-19 crisis. These amendments provide a safety net to businesses in challenging times to foster survival for those businesses once the crisis has passed.

On 23 March 2020, in response to the increasing economic threat that the Coronavirus poses, the Commonwealth Government introduced the Coronavirus Economic Response Package Omnibus Bill 2020 (Economic Response Bill). The Economic Response Bill proposes various amendments to the Corporations Act 2001 (Cth) (Act), with the objective of providing temporary relief for financially distressed businesses and promoting business continuity in the current climate.

The economic impacts of COVID-19 are unexpected and significant. While the Australian Government has announced a number of temporary reforms to address these impacts, there remains risk for directors of companies that are unable to pay their debts as and when they are due. 

This week’s TGIF considers the Coronavirus Economic Response Package Omnibus Act 2020, which was passed in response to the economic impact of the coronavirus. Amongst other things, the Act makes significant changes to creditor’s statutory demands and insolvent trading laws.

The Act