The Covid-19 Pandemic – Helping Directors To Steer Their Businesses Through The Economic Crisis in Australia

23 March 2020

Over the weekend, the Federal Government announced changes to Australia’s insolvent trading laws and have taken other measures in an attempt to help businesses manage the fallout from the Coronavirus pandemic. Amongst the suite of measures which have been announced, it is understood that, at least for the foreseeable future –

• Directors will be relieved from trading whilst insolvent in respect of debts incurred in the normal course of business which will apply for a six month period (however noting that the company will still be liable for incurring debts in this period);
• Creditors will not be able to issue any statutory demand on a company unless the debt owed by the company exceeds $20,000 (lifted from the statutory minimum amount currently of $2,000) which will also apply for six months;
• Furthermore, those companies served with any statutory demands under these new changes will have six months rather than twenty-one days to respond or deal with those demands;
• The Australian Taxation Office will consider what it can do to help businesses affected by Covid-19 including refraining from issuing Director Penalty Notices and winding up applications for the foreseeable future;
• The bankruptcy threshold to initiate a bankruptcy notice against any individual will be increased from $5,000 to $20,000, debtors will get six months rather than twenty-one days to respond to any notice and debtors will have a period of six months rather than twenty-one days to present a debtor’s petition.

These changes have yet got any legal effect. Legislation to enable amendments to the Corporations Act and other legislation will need to be made. We anticipate they will be made in a bipartisan manner as soon as possible.

In the meantime, there is some protection by way of the Safe Harbour amendments to the Corporations Act which came into effect in September 2017 which provided directors with a mechanism to develop a plan in an attempt to save a company which could give some relief from an insolvent trading claim in the event that the company was ultimately wound up. A link to our article dated 16 October 2017 is found here –

http://www.meerkinapel.com.au/news/Articles/Litigation/Australia-Sails-Into-Safe-Harbour-Legislation

As far as we are aware, no court has yet given any judicial interpretation of these safe harbour provisions and it remains to be seen how they will deal with it.

However, with the Covid-19 crises, until the above changes announced by the Federal Government over the weekend take legal effect, directors should proceed with caution and seek advice as soon as possible.

Please contact Howard Chait of this office on (03) 9510 0366 or hc@meerkinapel.com.au at any stage should you require advice.