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
As part of the its efforts to stem the effects of the COVID-19 pandemic on the Australian economy, the Federal Government has recently introduced a number of ‘safety net’ provisions designed to avoid financially distressed individuals and companies being forced into, respectively, bankruptcy and liquidation.
The objective is to allow them to continue trading where possible.
The reforms
If ever there were times challenging enough for boards to be considering the financial lifeline that is safe harbour from insolvent trading, these are they.
On a daily basis we are reading news of businesses having to shut down and lay off employees and seeing footage of lengthy Centrelink queues. Boards are working harder than ever to govern their organisations in incredibly uncertain times.
On Tuesday 24 March 2020 the Commonwealth Parliament passed emergency laws responding to the COVID 19 Pandemic. [1]
Critically the Government has enacted amendments to the Corporations Act 2001 (Act):
It distresses me to even contemplate how many businesses operating in the construction industry will eventually succumb to some form of insolvency as a result of the coronavirus (COVID-19) crisis (event).
These are extraordinary times and as such, it cannot be ‘business as usual’ in terms of how the construction industry is regulated in terms of insolvency.
In an article in the Financial Review dated 17 March 2020, it is stated:
With Australia facing a likely shut down of non-essential services in the next 48 hours, many otherwise profitable and viable business are unfortunately facing financial distress. As part of the Federal Government's second economic stimulus package, it has been announced that the Morrison government will make temporary changes to insolvent trading laws including providing directors from temporary relief for insolvent trading.
The key measures (all to apply for the next six months only) are as follows:
As the Novel coronavirus (COVID-19) pandemic continues to spread across the globe, people and businesses are facing unprecedented challenges, both immediate and strategic. Governments in various jurisdictions have announced various measures to try to alleviate the distress caused by the numerous issues that have arisen and continue to arise, particularly around cashflow and employees.
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: