By Phoebe Langridge

24 November 2020

There have been so many temporary changes to the law in light of COVID-19 to assist people and businesses, that it can be difficult to keep on top of all the changes and which ones apply to you.

Businesses of course will be generally aware of the changes to insolvency laws which have been widely discussed over the last eight months, with much of the discussion around relief for ‘distressed’ businesses including a 6-month moratorium for insolvent trading liability which has recently been extended to be in force until 31 December 2020 (Temporary Provisions).

In terms of director’s liability, the Temporary Provisions provide Company directors with a ‘safe harbour’ defence through the insertion of section 588GAAA into the Corporations Act 2001 (Cth) (Safe Harbour Defence), which if applicable, can provide a director with a defence to a personal liability claim for insolvent trading.  Of course, there are various thresholds which need to be met for the Safe Harbour Defence to be applicable including the debt being incurred in the relevant period (25 March 2020 to 31 December 2020) and in the ordinary course the of the Company’s business.

However, it appears that a failure of the Temporary Provisions is that Company directors will not be given retrospective protection if the Company enters administration after 31 December 2020.  This means that if a director does not take action prior to 31 December 2020 they will be unable to call upon the Safe Harbour Defence, notwithstanding the debt was incurred in the relevant period and the other threshold requirements are met.  At this stage, it remains unclear if there will be a further extension of the Temporary Provisions or if there will be an amendment to the Temporary Provisions to allow the Safe Harbour Defence to apply retrospectively.

It is therefore vitally important that Company directors are aware of their potential personal liability and the looming deadline of 31 December 2020.

At Tisher Liner FC Law, we work closely with a number of insolvency, accounting and restructuring firms who, together with our specialist team, can provide tailored structuring and insolvency advice.

Related Articles

View All
Insolvency

Could 2021 be the year where insolvency strikes back?

With this in mind, it is imperative that small businesses are aware of the incoming legislation said to be...
Read More
Commercial Law / Commercial Contracts & Agreements / Corporate Advisory and M&A

Negotiating Indemnities: Some Practical Tips

An appropriate indemnity can provide a valuable mechanism for risk allocation between parties to commercial dealings...
Read More
Commercial Law / Corporate Advisory and M&A / Insolvency

Changes to Director Liabilities: Understanding Your Exposure

In essence, the legislation broadens director liabilities to now include GST, luxury car taxes and wine equalisation...
Read More
Not-for-Profit & Charities / Technology and Start Ups / Adverse Possession

TLFC – Award Finalist for Law Firm of the Year (Medium Category)

Tisher Liner FC are proud to be nominated as an award finalist in the 14th annual Victorian Legal Awards Medium Law...
Read More
Property & Development / Family Law / Insolvency

The house belongs to my spouse! – but does it really?

No! A spousal transfer, typically done for “natural love and affection”, whilst exempt from stamp duty, may not...
Read More
Insolvency

Central Cleaning appeal decision clarifies law relating to trading terms.

The Court of Appeal has overturned the 2014 case of Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2014] VSC 61...
Read More
Insolvency

Bankruptcy organisations have a new name.

Just recently, the Federal Magistrates Court has also changed its name to the Federal Circuit Court of Australia (FCCA)...
Read More
Insolvency

Creditors Statutory Demands – Been Served? Can you beat them?

The demand must be in the prescribed form set out in Form 509H and the creditor must strictly comply with the...
Read More