COVID-19: Changes to the Corporations Act provide temporary relief

The Federal Government has announced a series of amendments to the Corporations Act 2001 (Cth) (Corporations Act) as a result of COVID-19 in order to provide temporary relief to otherwise viable companies who suddenly find themselves facing financial distress. 

These amendments, which were passed on 23 March 2020, including a safe harbour from insolvent trading liabilities for companies in respect of debts incurred in the next 6 months in the ordinary course of business. This will assist companies effected by the coronavirus or by the government lockdowns by allowing additional time for directors to assess the unprecedented changes to trading conditions and to produce and implement a turnaround plan, without the threat of insolvent trading or a breach of general directors’ duties. 

The government has also increased the minimum debt which can form the basis for a statutory demand from $2,000 to $20,000. And the period in which the debt must be paid from 21 days to six months. 

For most companies experiencing financial distress as a result of COVID-19, these measures provide some relief but without any certainty of how long the crisis will continue, this package is unlikely to be enough on its own. 

Directors must work quickly to prepare a turnaround or survival plan which might include refinancing, cost reduction measures, business restructures or creditor standstills. Other than in respect of the changes regarding insolvent trading, directors will still be subject to the usual directors’ duties and it is vital that they continue to monitor and revisit the plans as the coronavirus pandemic and the economic fallout develops.  

For advice on, or assistance in planning ahead regarding your company’s liabilities or rights in connection with COVID-19, contact a PB Lawyer today.