Mark Allen, Director at Aperion law, presented a webinar on identifying and managing legal issues arising from the COVID19 pandemic. Aperion Law, a long-time supporter and member of Fishburners, delivered this presentation as part of its commitment to fellow members and the wider Fishburners community.
The webinar covered critical legal issues by way of an initial presentation from Mark, followed by a detailed Q&A session. This
article features one of the many topics that were covered. It is specifically more about your personal position as a director, and
about the company’s ability to continue trading if the cashflow has ceased.
Director's Duties during the COVID-19 pandemic
The government has recently made an announcement that the law that makes you liable for insolvent trading is being suspended for a period, to allow companies to trade insolvent without directors thereby attracting liability.
Remember that your duty as a director is not to incur a debt knowing that your company is not going to be able to pay for it. But if your company has hit rough waters, and is not able to pay its debts under a contract it might have entered into some time ago, that doesn’t make you automatically liable now for those debts. The date that’s relevant for looking at whether a director is liable, is when the contract was signed. So, if you signed a contract in good faith six months ago, then no one could have imagined the catastrophe we are now facing and you do not automatically become liable. However, if you enter into a lease today for example, knowing that you may not have any revenue from which to pay the rent, then that would be a problem.
How Safe Harbour may apply during COVID-19
For those companies that are in serious difficulties, there is a safe harbour measure as well, where in order to save the company, you do need to go ahead and make some commitments. When the safe harbour provisions did come in, they were criticised for not having much benefit, but it is worth remembering that they do exist. It does require you to be obtaining good advice and to have a plan that essentially says that by following a set course of action (incurring liabilities for example) it is likely that the company is going to end up in a better position than if it simply did nothing. However, there are a lot of rules around it and it needs to be reviewed on a case to case basis.
Continue to assess your financial position
Often the case with companies that are juggling their financial position that liabilities are perhaps ignored or a lower value is placed on
them. You need to make sure that when you are assessing the company’s financial position, whether it is solvent and that adequate provision
has been made for all liabilities. If a close examination by perhaps a more zealous accountant is made, who can challenge some of the
details that are in your accounts, then it can cause problems.
Company structuring for IP & asset protection
We always advise our clients to place intellectual property and their intangible assets in a separate company, away from the trading company, so that if the trading company does go broke, then those assets are safe from insolvency or the liquidator’s hands and can be repurposed or reused in a new business venture. If you haven’t done this already then it might be too late, because if you do something that deprives a company of assets and that company goes into liquidation in the next six months then that transaction will automatically be undone. But for those of you who have a longer term view and maybe concerned about the future or a recurrence of an event like this, you should consider whether your assets are safe. If you’ve got them in the operating company, it could be worthwhile to put them into a special purpose or intellectual property holding company.
Is your company terminal? - Administration/Liquidation/Receivership
If your company’s situation is terminal then you need to think about whether you appoint an administrator or whether the company needs to go into liquidation or whether someone who has security over the company can appoint a receiver.
To find out more about the specific topics that were addressed in the webinar, click on the links below-
COVID-19: Contractual term you should be aware of
COVID-19 and Issues with the Code of Conduct
COVID-19 and Employment Law
Aperion is offering a free 30-minute consultation for those who might want to know - or get a second opinion - about their particular situation in the current environment and want to discuss options available.
If you want to take advantage of this invitation, please contact:
Mark Allen on 0417 251 354 or firstname.lastname@example.org
Peter Lightbody on 0419 166 828 or email@example.com
Ashley Cheng on 0408 176 489 or firstname.lastname@example.org