The Australian Federal Parliament has fast-tracked a Bill through both Houses of Parliament for an Act to provide economic and in-kind relief for businesses and individuals affected by COVID-19. The Act, when given the final Royal Assent, will be the Coronavirus Economic Response Package Omnibus Act 2020.
The Bill covers a range of topics, including stimulus payments, childcare, superannuation and Medicare levies. We have outlined below three key changes to the Corporations Act 2001 (the Corporations Act), expanding on our "Insolvency law changes are not a silver bullet" article published on Sunday, 22 March 2020.
Each amendment discussed below takes effect from the day after the Bill receives Royal Assent, which, while yet to be confirmed, will likely be in the coming days (the Commencement Date).
These provisions are only temporary and will, at this stage, apply for 6 months. None of the proposed amendments discussed below are retrospective. This means, for example, that a statutory demand issued today will still need to be complied with within 21 days to avoid the presumption of insolvency.
1. Temporary relief for financially distressed individuals and businesses
The Corporations Act is amended to provide temporary relief for financially distressed individuals and businesses.
For businesses, the minimum threshold of debt for a statutory demand to be issued to a debtor company has been increased from $2,000 to $20,000 and the time for compliance has extended from 21 days to six months. These amendments apply to statutory demands served on or after the Commencement Date only. The period of time to comply with a bankruptcy notice has also been extended from 21 days to six months .
2. Insolvent Trading relief
The relief from insolvent trading will apply for six months from the Commencement Date (the relevant six month period). It affords directors temporary relief from personal liability for insolvent trading in the following circumstances:
the relevant debt is incurred by the company in the ordinary course of the company’s business;
the debt is incurred during the relevant six month period, or a longer period if prescribed; and
the debt is incurred before any appointment of an administrator or liquidator of the company during the relevant six month period.
The phrase ‘ordinary course of business’ requires the debt to be necessarily incurred to facilitate the continuation of the business during the relevant six month period. An example is taking out a loan to shift business operations online. Further circumstances may be outlined in the regulations. Directors will bear the burden of proving the debt was incurred in the ordinary course of the company’s business.
A holding company may also rely on the temporary relief from insolvent trading by its subsidiary. To do so, the holding company must take reasonable steps to ensure that the relevant debt incurred by the subsidiary was done so in the ordinary course of business.
3. Treasurer given wide powers
Under the heading ‘Providing flexibility in the Corporations Act’, the Treasurer has been given wide powers to exempt classes of persons from the operation of any part of the Corporations Act or modify the operation of the Act in any way.
This power will only be available to the Minister during the 6 months from the Commencement Date.
In order to use this power, the Minister must be satisfied:
that it would not be ‘reasonable’ to expect those people to comply with the provisions because of the impact of COVID-19; or
the exemption or modification is necessary or appropriate to:
- facilitate continuation of business; or
- mitigate the economic impact of the coronavirus.
These are extraordinarily wide powers given to the executive during these extraordinary times.
If you have any questions about current events and how they may impact your business, please contact Nick Edwards (firstname.lastname@example.org), Zina Edwards (email@example.com) or Brit Ibanez (firstname.lastname@example.org).
Our Finance and Restructuring team has considerable restructuring and turnaround experience across all relevant areas including finance, debt trading, loan to own transactions, distressed M&A, safe harbour, enforcement and insolvency.