During the second half of 2019, it was generally accepted that the US/China trade war was the most likely macroeconomic event that would precipitate a global slowdown. Even then, given the enormous amount of ‘dry powder’ capital that was available in the market, the downturn, if any, was expected to be mild.
The COVID-19 outbreak, this week declared a pandemic by the World Health Organization, is presenting new and unprecedented challenges for businesses across the globe, including in Australia. Challenging trading conditions are bringing into sharp relief the duty of directors to avoid trading whilst the company is insolvent. The safe harbour provisions in the Corporations Act 2001 (Cth) provide an opportunity for directors to weather the storm, whilst avoiding personal liability for insolvent trading.
As the social and economic disruption caused by coronavirus (COVID-19) continues to rapidly evolve, the boards of Australian companies are facing solvency related issues. These issues extend to the solvency of suppliers and customers, and the potential consequences of the appointment of a voluntary administrator.
The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 was passed by both houses of Parliament on 5 February 2020, with an amendment made by the Senate to review the operation and effectiveness of the legislation after five years accepted by the House of Representatives.
ASIC is becoming more serious and more active and will take action against directors if there is su cient reason to, so insolvency practitioners should consider all possible actions/recoveries fully in any report to ASIC.
A company's financial distress presents a challenge for its directors and officers of large and complex financial services companies and can raise a range of difficult issues, including potential liability for insolvent trading, which potentially exposes directors both to civil and criminal consequences under the Corporations Act 2001(Cth).
During the second half of 2019, it was generally accepted that the US/China trade war was the most likely macroeconomic event that would precipitate a global slowdown. Even then, given the enormous amount of ‘dry powder’ capital that was available in the market, the downturn, if any, was expected to be mild.
The perception of Australia as being a relatively “risky” place to sit on a Board has generally focused on the insolvent trading prohibition in section 588G of the Corporations Act 2001 (Cth) and how it interacts with general directors’ duties.[1]
On 11 December 2019, the NSW Court of Appeal found that an administrator should not have used his casting vote to block a resolution for the appointment of a different person as the company’s liquidator. The decision (Glenfyne International Holding Limited v Glenfyne Farms International AU Pty Ltd (in liq) [2019] NSWCA 304) reverses a previous decision where the Court found that it did not have the power to disturb the result of the vote.
Background
This week’s TGIF considers a recent decision of the Supreme Court of Western Australia regarding an application for a company to be wound up under s 459P of the Corporations Act or, alternatively, on just and equitable grounds.
What happened?
In a decision of the Federal Court handed down on 18 October 2019 in Masters v Lombe (Liquidator); In the Matter of Babcock & Brown Limited (In Liquidation) [2019] FCA 1720, Foster J held that Babcock & Brown Limited (BBL) did not breach the continuous disclosure obligations in the Corporations Act 2001 and the ASX Listing Rules.