Directors of Australian companies face significant personal monetary -- and potential criminal and adverse professional -- consequences if they allow the company to trade whilst insolvent.
Australian insolvent trading laws are harsher, and more frequently utilised to prosecute directors personally, than in many other jurisdictions including in the US and the UK.
Accordingly, frequent assessment of a company's solvency by its directors is crucial, particularly in financially difficult times, as are active steps to address any potential insolvency.
The Government has announced proposals for retrospective changes for the urgent reforms to UK insolvency law, designed to protect companies and their directors during the COVID-19 outbreak.
Wrongful trading
These changes will include a temporary suspension (to the end of June 2020) of section 214 Insolvency Act 1986 in relation to wrongful trading, subject to passage of the upcoming Corporate Insolvency & Governance Bill through Parliament in the coming weeks.
New guarantee facility, extension of ERTE temporary layoff procedures, effects of the crisis on transfer pricing, return to judicial activity and ‘shields’ for businesses.
Am 16. März 2020 beschloss der Bundesrat den Lockdown. Letzteres führte dazu, dass unzählige Unternehmen in einen Liquiditätsengpass gerieten. Um Massenkonkurse abzuwenden, wurde der Rechtsstillstand bis zum 19. April 2020 verordnet. Zudem konnten Kredite zur Überbrückung von Corona-bedingten Engpässen bezogen werden. Trotz oder gerade durch diese Massnahmen gerieten viele Unternehmen in finanzielle Schieflage. Per 20. April 2020 erliess der Bundesrat sodann die sog COVID-19-Verordnung, eine Verordnung über insolvenzrechtliche Massnahmen zur Bewältigung der Coronakrise.
In recent decisions involving accessories retailer Colette Group and Virgin airlines, the Federal Court of Australia found that the extraordinary circumstances of COVID-19 warrant a grant of relief for the administrators from personal liability for rent.
In both cases, the Court acknowledged the uncertainty caused by COVID-19 and found that the rent reprieve for the administrators was in the best interests of the creditors as a whole.
colette group
The number of confirmed cases of COVID-19 in the United Arab Emirates (UAE) has risen rapidly, prompting local authorities to put in place stricter containment measures, including a full lockdown which commenced on 4 April 2020. Outside of businesses in vital sectors, all other businesses were directed to apply a work from home policy or to close down.
Directors of Hong Kong companies operate in an environment of personal liability – a liability that is brought into sharp focus where companies face financial difficulties or even insolvency. This liability may take not only the form of criminal or civil liability but also the form of a director disqualification order, meaning an order to bar that director from being involved in the management of a company in the future.
The surprising emergence of COVID-19 in 2020 has caught many companies by a complete surprise. Boards of directors of companies, of every size and from each industry, who have just recently approved their budget for 2020, have fallen into a new reality – suspension and, occasionally, complete stop, of business activity. The economic effect of the deadly virus is yet to be fully realized, however it is safe to assume that many companies and business entities who suffer liquidity issues during the crisis, may face insolvency or quasi-insolvency proceedings.
Shareholders in FTSE 250 company TI Fluid Systems yesterday voted down the company’s proposal to pay a £27 million dividend. In a highly unusual move, 57 per cent of shareholders in the motor part manufacturer used their votes to block the dividend payment which had been recommended by the board just four days earlier. It followed critical media coverage of the proposal, which centred on the fact that the company was making the payment while furloughing staff and cutting workers’ pay and would have resulted in a payment of almost £15 million to US private equity firm Bain Capital.