Relief for directors from insolvency laws part of COVID-19 measures

I am fully aware that there is information overload at the moment, but at the same time there is a lot of things happening. I am doing my best to only write on important issues, or ones that I, and the team here at LMI, are being inundated with.

The Federal Government announced on Sunday that directors would be exempt from personal liability for trading, while insolvent for six months, as part of its response to COVID-19.

This is welcome news with many organisations likely to face unprecedented disruption in coming months. This will give directors more confidence to trade through this crisis, rather than place a business into administration, with the costs and job losses that entails.

Importantly, even though not personally liable for debts incurred, directors will still need to manage their general duties, including to act in the best interest of the corporation and with due care and diligence, during these extremely trying times. These duties can change in nature during situations of insolvency, with the rights of creditors needing to be factored into board decision-making.

Separately, the Government intends to grant the Treasurer powers to exempt companies from Corporations Act requirements during these times, including with respect to the holding of physical annual general meetings.

All this is of importance to your clients who, may need some good news and reassurance at this time. It does not mean that they should cancel their Directors and Officers insurance policies.

At the request of many, I am preparing a similar document to assist brokers explain rent default issues, where distressed residential tenants are simply refusing to pay rent and the authorities in some states are refusing to act. I hope to have this ready within 24 hours.