2020 was a hard year for many companies as COVID-19 forced them to drastically adapt the way that they conducted business or suspend operations completely. Many companies have been so affected by the pandemic that they have become insolvent – they are no longer able to keep up with the debts they need to pay. If your company was one of the unlucky majority who have been struggling to survive the pandemic, there are still several options to get your company back to trading at full capacity.
In March of 2020, the Australian Government passed legislation that broadened the safe harbour provisions of the Corporations Act 2001 to allow struggling businesses to enter the ‘safe harbour’ and continue incurring debts in the ordinary course of business despite potential insolvency. The statutory ‘safe harbour’ allows insolvent businesses to continue trading in the ordinary course of business without risk of personal liability to directors in the months surrounding the peak of the virus. This provision applies to any debts incurred from 24 March 2020 to 31 December 2020.
Since the recent expiration of this provision, there has been an influx of business again struggling to stay afloat. Companies in this position should consider the standard safe harbour provisions as their first port of call. These provisions do require some extra steps to enter the safe harbour that the previous COVID-19 provisions did not. If your company is insolvent or it seems likely that insolvency is on the cards, creating a plan that is reasonably likely to lead to a better outcome and as soon as you suspect that your company may be insolvent is crucial to ensuring personal protection for directors as well as increasing chances of survival for the whole company.
Navigating the safe harbour provisions can be a difficult process and so we recommend seeking legal advice to assist you in this task. If you are seeking legal advice on the safe harbour provisions, please feel free to get in contact with one of our experienced commercial lawyers at Frank Law on (02) 9688 6023.
If you have further questions, please contact us at firstname.lastname@example.org.
This is not legal advice.