Today, the Government has announced a range of initiatives as part of their economic response to the Coronavirus. Legislation will be considered, and we anticipate this will be passed on Monday 23 March 2020, or shortly after.
The temporary relief for financially distressed businesses is one that has been highly anticipated. This will have an effect on our current insolvency laws, corporate governance and directors' duties. Key elements of the package are below.
We look forward to providing you a more detailed analysis on this, once the legislation and regulations are available, in addition to the other stimulus measures put forward by the Government.
Providing temporary relief for financially distressed businesses
The elements of the package include:
- A temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive;
- A temporary increase in the threshold for a creditor to initiate bankruptcy proceedings, an increase in the time period for debtors to respond to a bankruptcy notice, and extending the period of protection a debtor receives after making a declaration of intention to present a debtor's petition;
- Temporary relief for directors from any personal liability for trading while insolvent, for a 6 month period. This is for debts incurred in the ordinary course of the company's business, which is a broad concept that is intended to facilitate businesses to continue to trade; and
- Providing temporary flexibility in the Corporations Act 2001 to provide targeted relief for companies from provisions of the Act to deal with unforeseen events that arise as a result of the Coronavirus health crisis.
For owners or directors of a business that are currently struggling due to the Coronavirus, the ATO will tailor solutions for their circumstances, including temporary reduction of payments or deferrals, or withholding enforcement actions including Director Penalty Notices and wind-ups.
The Treasurer will be given a temporary instrument-making power in the Corporations Act to temporarily amend the provisions of the Act to provide relief from specific obligations or to enable compliance with legal requirement during the crisis. The instrument making power will apply for six months. Any instrument will apply for up to six months from the date it is made. It remains to be seen whether the legislation will have retrospective effect.
We welcome this development because ASIC has only limited powers to relieve companies from Corporations Act obligations. In particular, on Friday, ASIC provided helpful guidance to companies in relation to postponement of annual general meetings; however, ASIC admitted it did not have the power to grant extensions of time on a 'class basis'.
More information regarding the temporary relief for financially distressed businesses can be found here.
If you have further queries relating to the temporary relief for financially distressed businesses please contact:
- Will Heath, Partner, Corporate M & A, KWM
- Tim Klineberg, Head of Restructuring & Insolvency, Australia, KWM
- Samantha Kinsey, Partner, Restructuring & Insolvency, Australia, KWM
If you have further queries relating to the Government's response more broadly and what this means for you please contact Renae Lattey, Managing Partner, Clients, KWM.
