Update on COVID-19 corporate law reform

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This article was written by Diana Nicholson, Will Heath and Sam Dimopoulos.

As 2020 draws to a close, various temporary corporate law reforms introduced at the outset of the COVID-19 pandemic have begun to or will soon expire. However, others have been extended into 2021, with some now expected to lead to permanent changes.

This note provides a brief update for directors on the key aspects of the COVID-19 and wider corporate law reform which impact Board and governance issues. It is not intended to be comprehensive and we would be happy to provide further information on topics mentioned in (or omitted from) this note.

What's expired or expiring soon?

  • Emergency capital raising relief: ASX's temporary emergency capital raising measures – which, amongst other things, facilitated larger placements – expired on 30 November 2020.  This followed an earlier narrowing of the relief measures which required any entity seeking to rely on the relief to satisfy ASX that it was raising capital predominantly for the purpose of addressing the financial or economic effects of COVID-19 on the entity. ASX finally ended the temporary relief measures on the basis that secondary capital markets had stabilised. Whether the removal of the temporary relief will result in fewer placements and more entitlement offers remains to be seen:  we previously noted that the increase of the SPP cap in 2019 made it more attractive for companies and Boards to choose placements and SPPs over entitlement offers.
  • Directors' duty to prevent insolvent trading: The temporary relief for directors from personal liability for trading while insolvent, for debts incurred in the ordinary course of the company's business, will expire on 31 December 2020. Its expiry coincides with new insolvency reforms for small businesses coming into effect on 1 January 2021 (set out in further detail below).

What's been extended?

  • Financial reporting deadlines: On 11 November 2020, ASIC announced that it would extend the deadline for listed and unlisted entities to lodge financial reports by one month for certain balance dates up to and including 7 January 2021. For listed entities, this provides an additional month to report for full year and half year financial reports for 21 February 2020 to 7 January 2021 balance dates.
  • 'No action' position on holding of AGMs: ASIC also announced that it has adopted a 'no action' position where public companies do not hold their AGMs within five months after the end financial years from 31 December 2019 to 7 January 2021, but do so up to seven months after year end.

What can we expect in 2021?

  • Virtual AGMs and electronic document execution: Public consultation on proposed permanent reforms for virtual AGMs and electronic document execution closed on 6 November 2020. The draft legislation as published by Treasury proposes to make permanent the temporary relief measures which allow company documents to be executed using electronic means. The draft legislation also proposes that AGMs may be held using electronic means provided all persons have a reasonable opportunity to participate. The proposals in respect of virtual AGMs received significant investor and media attention, which we expect to continue as the proposed bills are tabled before parliament in 2021.
  • Insolvency reforms: From 1 January 2021, insolvency reforms modelled on key features of the "Chapter 11 bankruptcy model" in the United States come into effect. These reforms will be available to incorporated businesses with liabilities of less than $1 million, and are aimed at giving those businesses greater flexibility to restructure existing debts.

We also expect those areas of law subject to considerable debate throughout 2020, including continuous disclosure rules and litigation funding, to be prominent in discussions in 2021.  In particular, the Parliamentary Joint Committee on Corporations and Financial Services' inquiry into litigation funding and the regulation of the class action industry (and Australia's plaintiff-friendly securities laws which underpin that industry) is scheduled to hand down its report on 21 December 2020, just in time for festive season.

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