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:

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

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.

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.

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.

Amendments to the Corporations Act 2001 (Cth) (Corporations Act) to implement the measures announced by Treasurer Josh Frydenberg on Sunday, 22 March 2020 to provide temporary relief for financially distressed businesses due to COVID-19 have now come into effect.

The Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (CERPO Act) amendments were passed by the Parliament on 2 March 2020. They will apply for a 6 month period, but may be extended or have impacts beyond that timeframe.

The Australian Federal Government has now passed temporary amendments to insolvency and corporations laws in light of the challenges COVID-19 poses to many otherwise profitable and viable businesses.

The Coronavirus Economic Response Package Omnibus Bill 2020 (Coronavirus Response Bill) was passed on 23 March 2020 and received Royal Assent on 24 March 2020 following the Federal Government’s announcements made between 12 and 22 March 2020 of its economic response to the spread of the coronavirus pandemic.

The Coronavirus Response Bill provides, amongst other legislative amendments, for temporary changes of 6 months’ duration to Australian insolvency and corporations laws to assist in managing the sudden economic shock resulting from COVID-19.