We’re half way through government relief protecting directors from the consequences of insolvent trading.
Further to the extension of Safe Harbour measures provided by the Federal Government, which were intended to shield directors from the impact of COVID-19 (see our article published on 3 April 2020 in the News Hub), the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (CERPO Act) grants temporary immunity to directors from insolvent trading liability for a period of six months (commencing on 25 March 2020) in relation to debts incurred in the ‘ordinary course of the company’s business’.
If you are a director of a company that may be facing insolvency, we recommend that you ensure:
- regular board and management meetings are held, specifically turning your attention to financial and solvency issues;
- you stay informed of the company’s financial position at all times, not just at scheduled meeting times;
- all available options for improving the financial position of the company are assessed and reasonable active steps are taken to explore these;
- a plan for restructuring the company operations is prepared and developed to improve its financial position if it is foreseeable that the company will continue to struggle at the end of the respite period; and
- incurring debt (particularly large debts), is delayed wherever possible.
All other directors’ duties (such as the duty to act in good faith and in the best interests of the company and the duty to avoid conflicts of interest) continue to apply despite the available safe harbour relief and extensions of time.