Insolvency

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.