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Are you the director of a company?

Is your company unable to pay its debts due to Covid-19?

Are you considering placing the company into liquidation after the Jobkeeper payments and other stimulus measures cease in 2021?

If you have answered yes to the above questions, you need to read this article and obtain urgent legal and/or financial advice without delay and before 31 December 2020.

As a result of the economic impact of Covid-19, most businesses were required to shut down or significantly change their operations for a long period of time and under the Corporations Act 2001 (the Act) would be deemed to be insolvent as a result – that is, not able to pay its debts as and when they fall due.

The Government recognised that under the Act, once the companies went into liquidation, the directors would be liable for ‘insolvent trading’, which is the formal term for continuing to run a business or company whilst insolvent. The consequence of that would be that liquidators of the companies could make a claim against the directors personally for debts incurred by the company while it was ‘insolvent’.

To ease the burdens faced by directors in COVID-19, the Government introduced laws to temporarily protect directors from being personally liable for insolvent trading claims in some circumstances:  see section 588GAAA of the Act.

The temporary measures only protect directors from insolvent trading if the company is placed into liquidation before 31 December 2020.  The result is that many directors will be caught by surprise when early next year the stimulus measures (such as Jobkeeper) are rolled back. Directors of companies which are liquidated after the cut off will not have the protection of the temporary legislation.  This will leave many directors personally exposed to debts incurred by their companies during 2020 and into 2021.

If you are concerned about the risk of insolvent trading, call Melanie Skinner or Ben O’Hearn on 4951 8199 to obtain urgent legal advice to understand what this may mean for you, your company, and what options are available.

 

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The material included in this website is produced by O’Hearn Lawyers Pty Limited.  It is designed and intended for general information purposes only.  The contents do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such.  You should seek legal advice or other professional advice in relation to any particular matters you or your organisation may have. 

 

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