22 March 2020

COVID-19 Second Stimulus Package announced: Government initiatives for potentially financially distressed businesses

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:

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.

 

Key contacts

COVID-19: Implications for Business

The spread of Coronavirus (COVID-19) has forced us to think and act differently. Beyond the human response, now is the time to think about what the consequences may be on your business, and how best you can prepare for those.

Share on LinkedIn Share on Facebook Share on Twitter
    You might also be interested in

    ASIC released a consultation paper in June 2019 regarding the use of stub equity in public to private transactions, essentially looking to clamp down on the types of bid vehicles that could be used...

    19 October 2020

    With a large increase in fees proposed in the FIRB reform package, investors will be thinking twice about investing in Australia and when to make their approach to FIRB.

    02 October 2020

    In a year like no other, KWM’s Directions team took corporate Australia’s pulse through a COVID-19 focussed survey of directors and senior leaders.

    23 September 2020

    ACCC commences new inquiry into perishable agricultural products and the dairy code.

    04 September 2020

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.