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:

In non-coronavirus news for the insolvency sector, the 26 March judgment of the NSW Supreme Court in Aardwolf Industries LLC v Riad Tayeh provides reassurance to insolvency practitioners who take on the (often understated and unprofitable) work of being a court appointed liquidator.

The Court has restated the principle that its leave must be sought prior to commencing proceedings against a court appointed liquidator for the way in which the liquidation was conducted. The Court identified two reasons.

This week’s TGIF examines the recent changes to Australia’s insolvency regime, the potential implications for business and considerations for creditors in light of the impact from COVID-19.

The Australian Government has now passed theCoronavirus Economic Response Package Omnibus Bill 2020. The bill was fast-tracked through both houses of parliament with bipartisan support on 23 March 2020 and makes significant changes to Australia’s insolvency regime over the next six months.

What happened?

With the impact of COVID-19 rapidly being felt by businesses, 2020 is likely to see a number of Australian insureds face insolvency. While this presents a number of challenges for (re)insurers in the Australian market, there are steps that (re)insurers can take to manage the situation and their exposures.

COVID-19 presents the greatest challenge a generation of corporate managers will see in their lifetime.

This is not the first time the Australian economy has stared down the barrel of a severe economic downturn, but it is the first time the economic conditions that previously underlined robust business models have evaporated overnight due to a public health crisis.

The Australian Government has taken swift action to enact new legislation which significantly changes the insolvency laws relevant to all business as a result of the ongoing COVID-19 related developments.

Snapshot

As the CODIV-19 pandemic escalates and the Australian Government implements measures to address the ongoing health crisis, the toll on the Australian economy will increase.

The government has identified that the economic impacts of the COVID-19 pandemic and the public health measures to prevent its spread could see many otherwise profitable and viable businesses temporarily face financial distress.

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.