Extended Protection Limits

Extended Protection

Earlier in the year DBL Solicitors published two articles COVID-19 Positive Cash Flow and Extended Safe Harbour for Directors. Directors who have relied on this extended protection from March 2020 must appreciate that the offered protection has limits. This is the update to those articles.

Extension of support package

On 24 March 2020, the Australian Federal Government enacted the Coronavirus Economic Response Package Omnibus Act. This provided a safety net for businesses, debtors and Company directors for a period of 6 months from 25 March 2020. That period was to end on 24 September 2020. On 7 September 2020 the temporary insolvency and bankruptcy protections were extended until 31 December 2020. The changes also extended the temporary relief for directors from any personal liability for trading while insolvent.

But the end is coming

Directors who have relied on this extended protection from March 2020 must appreciate that the offered protection has limits. It has become clear that a director who continues to trade insolvent past the 31 December 2020 deadline has no retrospective protection.

So if your business is classified as insolvent come January 2021, then directors will be exposed to the insolvent trading provisions throughout any period the company was insolvent, including the March to December 2020 period, in any subsequent liquidation.

The insolvency practitioner industry is expecting a large uptick in personal and corporate insolvency appointments in 2021, driven by increased ATO recovery actions and the cessation of protection measures, such as the end of The Retail and Other Commercial Leases (COVID-19) Regulation 2020 which ended on 24 October 2020, 6 months after commencement.

The 6 month moratorium and supporting measures under the Residential Tenancies and Rooming Accommodation (COVID-19) Emergency Response) Amendment Regulation 2020 ended on 29 September 2020, although some limited protections remain in place until 31 December 2020.

Overall, businesses and individuals are being weaned off government support ahead of January 2021. Now is the time to begin preparing to stand on your own financial feet and implement the changes necessary to stay viable, or take early steps to limit your losses.

Please call if you would like advice specific to your circumstances.

DBL Solicitors