COVID-19 continues to disrupt the operation of businesses globally, presenting new challenges to company directors on how to continue to carry out their duties and obligations. While many directors are focused on the immediate practical implications of operating in these challenging times, directors must ensure they keep in mind their broader obligations to stakeholders under the Corporations Act 2001 (Cth). In this article, we address the potential issues facing directors in the context of the current pandemic.
There are numerous statutory obligations directors must adhere to. Directors must continue their duty to act in good faith and in the best interests of the corporation. Given the uncertainties surrounding the COVID-19 pandemic it may be challenging for directors to determine how their immediate actions may impact the long-term success of the company and its various stakeholders.
While directors must of course focus on the immediate implications of operating in these uncertain times, they must ensure that they continue to act in good faith and in a reasonable manner and make decisions based on the most reliable and up-to-date information in front of them. Continue to place priority on protecting the health and welfare of staff, and consider enacting contingency plans to avoid exposing the company to outside risks.
Financial Reporting and Annual General Meetings
The coronavirus has temporarily impacted companies’ abilities to hold annual general meetings (AGMs). For listed and unlisted public companies required to hold an AGM by 31st May 2020, ASIC has confirmed that it would take no action if AGMs are postponed up to the end of July or if AGMs are held virtually in compliance with s 249S of the Corporations Act. The holding of virtual AGMs is permitted under the Corporations Act, however entities must check whether their constitution restricts meetings being held in this way and seek legal advice on section 1322 of the Corporations Act.
Insolvency and ‘COVID-19 safe harbour’ provisions
The Coronavirus Economic Response Package Omnibus Act 2020 included, among other measures, a new section 588GAAA into the Corporations Act granting temporary relief for financially distressed businesses. The amendments provide a ‘safe harbour’ to grant relief for directors from potential personal liability for insolvent trading.
In order to be able to rely on these measure, the debt leading to insolvency must have been incurred in the ordinary course of the company’s business, during the six month period commencing from the 25 March 2020 (or longer as prescribed in another regulation), and before any appointment of an administrator or liquidator during that period.
In relation to insolvent trading, directors should seek advice early from a qualified and independent advisor about the company’s financial affairs and the options available to manage the disruption caused by COVID-19.
Check out our blog here for further more information and analysis on the restrictions and rules in place during COVID-19.
It is important to be fully aware of your duties and obligations as a director during this rapidly evolving and challenging environment during COVID-19. If you would like more information on how we can assist you, do not hesitate to contact us on 9963 9800 or at [email protected].