COVID-19: Australian Federal Government introduces Coronavirus Economic Response Package
As the world grapples with the global economic and health crisis brought about by the COVID-19 pandemic, the Australian Federal Government recently introduced a temporary set of regulations in the form of the Coronavirus Economic Response Package. The aim of the Package is to quickly absorb the blow for businesses and ensure that they can remain resilient in the uncertain economic times that lay ahead.
Countries around the world, including the UK and India, have recently taken active measures to beef up their laws and regulations governing businesses. As governments slowly come to terms with the economic tsunami that may potentially follow the pandemic, they have done their best to ensure that their economies are not hampered when businesses find themselves in the renewal stage.
With COVID-19 having a profound effect on businesses across Australia, it is crucial that directors and company owners stay aware of the relevant legal changes, and how these changes might impact them and their business operations.
In this article, we will discuss the positive changes brought about by the Coronavirus Economic Response Package. We also consider what actions you can take to ensure that your business can survive during this difficult period.
On 23 March 2020, the Federal Government passed the Coronavirus Economic Response Package Omnibus Act 2020 (Cth).
To provide businesses with further advice, the Federal Government also released a factsheet that details the extra help available to businesses. The summary reads as follows:
- A temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive;
- A temporary increase in the threshold for a creditor to initiate bankruptcy proceedings, an increase in the time period for debtors to respond to a bankruptcy notice, and extending the period of protection a debtor receives after making a declaration of intention to present a debtor’s petition;
- Temporary relief for directors from any personal liability for trading while insolvent; and
- Providing temporary flexibility in the Corporations Act 2001 to provide targeted relief for companies from provisions of the Act to deal with unforeseen events that arise as a result of the Coronavirus health crisis.
It should be noted that many elements of the Coronavirus Economic Response Package are temporary and will be lifted when the situation returns to some sort of normality.
Schedule 12 of the Act has further strengthened protection for companies that are currently operating during a temporary period of illiquidity. This will also permit such companies to avoid the process of voluntary administration which may result in the entity filing for bankruptcy.
The Schedule also makes amendments to existing Bankruptcy Regulations and offers extra support to individuals trying to manage debt and avoid unnecessary bankruptcy.
Protection for directors and businesses
The good news is that directors of companies will be temporarily omitted from the risk of personal liability for insolvent trading. Directors will be able to rely on this relief until 25 September 2020, unless the act is distinguished or extended.
The Act provides a much-needed safety net for directors during these uncertain conditions. As part of this effort, the minimum threshold for creditors issuing a statutory demand has changed. The old law allowed statutory proceedings to be brought forward for debts of $2,000; however, the new law has raised the threshold to $20,000 over a period of six months. Under the old law, companies had to respond to such demands within 21 days or face further punishment. Now, companies will have up to six months to respond to such demands.
Providing directors with protection from insolvent trading will ensure that businesses can survive during these difficult times, build up a sense of resilience, and remain prepared for the return of favourable economic conditions.
These measures are a welcome respite to those businesses that are suffering from the economic turmoil caused by COVID-19. While the Act provides substantial relief, it remains to be seen if it will be extended. The current measures allow many businesses to continue through this period of uncertainty and sustained disruption.
Bankruptcy proceedings against individuals
To supplement the support given to businesses, the Government has also provided extra leeway for individuals who are in debt.
Originally, a creditor could initiate bankruptcy proceedings over unpaid debt amounting to $5,000. This threshold has now been raised to $20,000.
Furthermore, individual debtors have been offered a reprieve from having to respond to bankruptcy proceedings within 21 days. The new limit is now six months.
Extra powers given to the Treasurer
As the impact of Coronavirus continues to play out and businesses try to return to some sense of normality, the Federal Government has given extra powers to the Treasurer to alleviate the strains on businesses.
In these times of severe business uncertainty, companies need to make quick decisions that they would usually spend months preparing for. To accommodate this reality, the Government aims to provide regulatory certainty in a fast and efficient manner without having to resort to unnecessary bureaucratic processes.
To deliver such certainty, the Government has given the Treasurer statutory powers to temporarily amend elements of the Corporations Act 2001.
What can your business do in these troubled times?
To protect the long-term interests of your business, we advise that you fully acquaint yourself with the extra protections that have been introduced in the Coronavirus Economic Response Package.
The key to your business surviving and thriving during this period of disruption all comes down to proactive business planning.
To reduce the risk of insolvency in the first place, we suggest that you consider the following:
- Ensure that your business has sufficient cash flow to meet day-to-day operations;
- Adopt your business plan to account for uncertain economic conditions;
- Never ignore your creditors – keep in constant communication with them;
- Take action to reduce unnecessary overheads;
- Seek advice from financial and legal professionals on how to keep your business afloat.
For further information on how your company can continue during uncertain times, the Small Business Development Corporation of the Government of Western Australia has recently put together a valuable blog and webpage.
However, there is no substitute for focused attention and advisory by knowledgeable professionals. The Restructuring and Insolvency Team at DSS Law is on hand to help you and your business during these challenging times.