Directors, Time to Look Out Before Solvency Relief Expires

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), thCoronavirus 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’. 

Debts incurred need to fall within the safe harbour provisions of the Corporations Act and you need to ensure that there is a reasonable prospect that your company will be able to return to solvent trading by the end of the 6 month respite period.
Now is the time to ensure that the buffer provided by government measures to assist during COVID-19 are working to help get you though, rather than merely delay, the inevitable if solvency might be an issue.

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.

Contact us to discuss any solvency issues and how to strategically ensure your company and its officers can deal with any challenges on the horizon.