Amendments to Business Operations During COVID-19

 

Nobody could have predicted or expected the sudden onslaught of COVID-19 or the way in which it has since impacted almost everyone in Australia, including businesses of all shapes and sizes.

In relation to the manner in which corporate directors operate a company during this time, there have been some temporary measures put into place, particularly to limit risk, especially on a personal level for Directors, and avoid the chance of the company trading whilst insolvent. The following is a run-down of some of these changes and what they could mean for you.

 

1. Insolvent Trading

As a company Director, at least until September 2020, you will not be personally liable if your company is found to have been trading insolvent, provided that the debts which may have caused the insolvent trading are incurred in the ordinary course of trade and not because the business went on some form of spending spree.

It is acknowledged that one of the most difficult directors’ duties decisions is whether to drawdown on credit facilities to provide much needed liquidity at a time when there is uncertainty about a borrower’s ability to avoid insolvency. The relaxation of wrongful trading provisions during the COVID-19 crisis will assist in enabling directors to more easily evaluate such decisions and in doing so reduce the prospect of large numbers of companies becoming cash flow insolvent.

Note however that though the company can still be found to have been trading insolvent this temporary exemption gives you personally and your personal assets some protection from claims by creditors. Keep in mind though that it is up to you to prove that there are adequate grounds for you to claim that the debts and reason for possible insolvent trading fall within the parameters of the temporary relief measures.

 

 

2. Claims by Creditors

Creditors in turn must now wait until a debt owed is at least worth $20,000 before either a statutory demand or bankruptcy notice can be issued. Previously, the amount was only $2,000 so there is now significantly more leeway in regard to outstanding debts owed before claims and so forth begin.

This in combination with a general moratorium of at least 3 months, within which time creditors are not entitled to chase corporate debts, gives some breathing space to sort out your business finances, especially after such a sudden change in the business state of affairs.

 

 

GST must however still be paid

These changes do not, however, extend to the payment of GST obligations and it is still the Director’s responsibility and liability to make sure that GST is paid. The ATO can otherwise chase a Director personally for a company’s GST debt, by way of issuing a Director Penalty Notice, which is not only now recorded against your name but may cause you grief if you go and seek a loan for the business.

All other Director’s duties also remain in place and you are expected to live up to those duties so this is not a time for complacency, despite some leniencies being offered. It is therefore also still advised that a clear plan is determined in regard to positioning the company to continue its business and deliver the best outcome for all stakeholders, including creditors.

 

DC Strategy Lawyers

Nina Rossi is a commercial and intellectual property lawyer admitted to the Supreme Court of New South Wales. She has completed Bachelor Degrees in Arts (Linguistics and History) and Law, along with a Masters in Management from the University of Sydney. Nina began her career working as a Trade Mark Examiner at IP Australia, later moving on to private practice and serving clients across industries, including fashion, IT, not for profit, food product manufacturing/distribution and food services. Nina has otherwise worked over the past 8 years in commercial and corporate advice and contract drafting, litigation, intellectual property registrations, advice and disputes and insolvency matters. Nina is keen to work with clients to grow their franchise and/or business and help achieve their goals.