Following announcements made on Sunday, 22 March 2020 by the Prime Minister Scott Morrison and the Treasurer, Josh Frydenberg, the Australian parliament met on Monday 23 March 2020 to debate and pass the Federal Government’s Coronavirus Economic Response Package.
The main measures announced by the PM are found in the Coronavirus Economic Response Package Omnibus Bill 2020 (“the Bill”). The Bill was passed late on Monday evening, following a minor amendment from the Senate. It is currently waiting on Royal Assent.
The Government has determined that greater flexibility, through a safety net, is required to be inserted into the insolvency and bankruptcy legislation to keep Australian businesses alive and assist them in trading during this uncertain period.
A number of regulatory amendments have been proposed with the intent of shielding otherwise profitable and viable businesses that are now under severe financial pressure as a result of COVID-19.
Schedule 12 to the Bill is described as providing temporary relief for financially distressed individuals and businesses. This is being provided through the introduction of three main measures, which are as follows:
1. Increased default amounts in the Bankruptcy Act 1966 and the Corporations Act 2001
The Bill provides a temporary increase in the minimum amount of debt required to be owed before a creditor can initiate bankruptcy proceedings against a person who owes money to them, from $5,000 to $20,000. Additionally, the bill provides a temporary increase in the minimum amount of debt required to be owed before a creditor can initiate winding up proceedings against a debtor company from $2,000 to $20,000.These amendments will automatically be repealed six months after the date on which it commences. They will apply to bankruptcy notices and statutory demands issued on or after the date the Act commences. Assuming the Bill receives assent today, it is fair to assume that the amendments will be in force until late September 2020.
2. Increased time for a debtor to respond to a statutory demand
The Bill also amends the amount of time that a debtor has to respond to the bankruptcy notice or statutory demand. Currently, that timeframe is 21 days. That will be increased to six months. This amendment is the same in both the Bankruptcy Act and Corporations Act. The amendments will automatically be repealed 6 months after the date on which they commence. The extended time for compliance will apply in respect of bankruptcy notices and statutorys demand issued on or after the date the Act commences.
3. Temporary relief for directors from their duty to prevent insolvent trading
The Bill provides for a new, temporary six month period in which a new and expanded safe harbour provision (Section 588GAAA) is inserted into the Corporations Act (“the Act”).Section 588GAAA provides that Section 588G(2) of the Act, being the section of the Act which imposes a personal liability on directors for insolvent trading, does not apply in relation to a person and a debt incurred by a company if the debt is incurred in the ordinary course of business, and during the six month period starting on the day that the Act commences (or any longer period as inserted by regulations). The debt must have been incurred before any appointment of an Administrator or Liquidator to the company during the six month period.
The Bill determines that a director will be taken to have incurred a debt in the ordinary course of business if the debt being incurred was necessary to facilitate the continuation of the business during the six month exemption period. Directors will bear an evidential burden to prove that they can rely on the safe harbour defence to insolvent trading, and that evidential burden is defined as the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist.
The temporary safe harbour relief under Section 588GAAA will also be available to a holding company in respect of insolvent trading by a subsidiary if the holding company takes reasonable steps to ensure the temporary safe harbour applies to each of the directors of the subsidiary, and to the debt, and if the temporary safe harbour does so apply. The holding company bears the evidentiary burden.
A person will not be entitled to claim the temporary safe harbour defence by reliance on information or books, if they have failed to comply with a notice to permit the inspection of, or delivery of, the books of the company to an External Administrator appointed to the company.
The Bill also introduces a further amendment to the Act . Section 1362A will insert a temporary mechanism into the Act that allows the Treasurer to, by legislative instrument:
– determine that (due to the Coronavirus) specific classes of persons are exempt from specified obligations in the Corporations Act or the Corporations Regulations; or,
– modify the specified obligations under the Corporations Act or the Corporations Regulations to enable specified classes of persons to comply with those obligations during the Coronavirus crisis.
During his speech on 22 March 2020, the Treasurer identified that an example of how this measure may be used would be to make specific provisions in respect of companies requirements to hold general meetings in person, and how that obligation will work given the current social distancing requirements introduced by the various Governments (Federal and State).
The measures will be available for a period of 6 months only, beginning on the day after the Bill receives Royal Assent.
The Treasurer has advised that these are extraordinary measures, to assist Australian companies during extraordinary times. However, one cannot help but wonder what will happen once the six month period runs out and many of these companies are in as bad, if not worse, positions than when the exemptions started.
There are other factors which directors, in particular, ought to consider when making decisions concerning a company’s future and from which they have little relief:
– lease and supplier guarantees;
– fiduciary duties and obligations;
– discharging their duties with care and diligence when making business judgments – Section 180 of the Act; and,
– exercising their powers and discharging their duties in good faith and for a proper purpose – Section 181 of the Act.
If economic circumstances return to near normal conditions in a relatively short period, the conduct of business people will receive a higher level of scrutiny as the public turns its attention to those who have not behaved or acted in an expected manner.
 The package is made up of 8 separate bills: Coronavirus Economic Response Package Omnibus Bill 2020, Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Bill 2020, Australian Business Growth Fund (Coronavirus Economic Response Package) Bill 2020, Assistance for Severely Affected Regions (Special Appropriation) (Coronavirus Economic Response Package) Bill 2020, Structured Finance Support (Coronavirus Economic Response Package) Bill 2020, Appropriation (Coronavirus Economic Response Package) Bill (No. 1) 2019-2020, Appropriation (Coronavirus Economic Response Package) Bill (No. 2) 2019-2020, and Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Bill 2020
 Schedule 8 of the Bill amends the Corporations Act and inserts “Part 9.11 – Coronavirus known as COVID-19”