Covid-19 – Temporary Relief from directors’ personal liability whilst trading insolvent
If a company trades while insolvent directors are personally liable. This can lead to boards of directors feeling under pressure to make quick decisions to enter into an insolvency process if there is any risk that the company will experience periods where it will be unable to be pay its debts when they fall due and are trading while insolvent.
In order to ensure that companies have confidence to continue to trade through the Covid-19 crisis with the aim of returning to viability when the crisis has passed, directors will be temporarily relieved of their duty to prevent insolvent trading of a company with respect to any debts incurred in the ordinary course of the company’s business. This will relieve the director of personal liability that would otherwise arise from insolvent trading. It will apply for six months.
Temporary relief from personal liability for insolvent trading will apply with respect to debts incurred in the ordinary course of the company’s business. Blatant cases of dishonesty and fraud will still be subject to criminal penalties. Any debts incurred by the company will still be payable by the company. The WA Premier and WA Treasurer announced $25 million has been allocated for a rent relief plan for small businesses and not-for-profits that lease from Government agencies and trading enterprises.
The plan will benefit businesses such as convenience stores in train stations, cafés in government buildings, and restaurants in tourism precincts. It will also benefit eligible small businesses leasing land from the WA Government, such as caravan park and eco-tourism operators.
Legislation is in place that allows pastoral lease holders to request rent payments be reduced, waived or delayed where the pastoral lease has been adversely affected, or if the lease holder is suffering personal financial hardship due to poor economic conditions in the pastoral industry.
The rent relief is in addition to the recently announced moratorium on the termination of leases for non-payment of rent for six months for commercial tenancies suffering financial distress, to be rolled out by State and Territory Governments in response to the COVID-19 pandemic.
Small businesses include those owned and operated by an individual, partnership or proprietary company with a relative small market share and are not a subsidiary of a larger business, as defined by the Small Business Development Corporation Act 1983. Not-for-profits include all charities and associations defined by the Associations Incorporation Act 2015.
Visit https://www.business.gov.au/risk-management/emergency-management/coronavirus-information-and-support-for-business/temporary-relief-for-financially-distressed-businesses for more information.
Tim Hayter, Principal, Mid West Lawyers
This information is general in nature and should not be relied upon as legal advice. Formal legal advice should be sought for your particular circumstances.
