The Treasurer, the Honourable Josh Frydenberg MP, has today announced proposed temporary changes to Australian corporate insolvency laws which will vary the minimum requirements for statutory demands and provide some relief for directors from insolvent trading. These announcements form part of the Australian Government's measures to support otherwise profitable and viable businesses due to the economic impacts of COVID-19.

On 22 March 2020, the Australian Federal Government announced a raft of proposed temporary changes to insolvency laws in light of the financial distress and challenges COVID-19 has caused to Australian businesses.

The proposed changes are summarised below:

companies

Statutory demands

The Federal Government has recently introduced the Coronavirus Economic Response Package Omnibus Bill 2020 (Bill).

Schedule 12 of the Bill will provide relief to individuals and businesses facing financial distress due to the COVID-19 crisis by effecting temporary changes to the Corporations Act 2001 (Cth) (CorporationsAct), the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) and the regulations to those Acts.

Yesterday, the Federal Government announced the following temporary measures for financially distressed businesses:

The increasing spread of COVID-19, and now the unprecedented measures being taken by governments to slow that spread, is having and will continue to have a significant impact on economies around the globe, including Australia. As the situation has not been seen before, it is difficult for businesses and individuals to plan ways to limit the impact on their ability to continue trading – and pay their debts.

In recognition of the unique challenges facing businesses today, the Australian Government has responded by acting to relax laws relating to insolvency.

What a director wanting to enter the safe harbour must do

Directors in Australia have long had a statutory duty to prevent insolvent trading. The duty is engaged where:

This week’s TGIF considers a recent application to the Federal Court by liquidators of the WDS Group for a pooling order.

What happened?

This case concerned the WDS Group of companies.

WDS Limited (WDS) was a publicly listed company on the ASX with 11 wholly owned subsidiaries (together, the WDS Group).

The Australian Financial Review recently published an article regarding requests to the Australian Government to impose a moratorium on the insolvent trading laws to "help businesses during the economic downturn".

The severe restrictions imposed by State and Federal Governments on large gatherings due to the COVID-19 pandemic are inhibiting, and in some cases preventing, businesses from trading. Although the present circumstances may necessitate administration or lead to receivership for some businesses, many practitioners are wary of accepting an appointment where there is an inability to trade as a going concern, thereby preserving value and maximising sale prospects.

National Rugby League (NRL) was successful in setting aside a summons for public examination obtained by the liquidator of Newheadspace Pty Limited (Newheadspace). The Court also awarded NRL its costs. The Court found that the creditors’ voluntary winding-up of Newheadspace was an abuse of process, and that the summonses were obtained for an improper purpose.