Delaying safe harbour could harm ill-equipped Directors

Recent changes to insolvency laws won’t help struggling businesses that don’t actively prepare for the intensive process of achieving sanctuary

By AnsaradaTue Apr 07 2020Debt raising / restructuring, Industry news and trends, CEO-CFO

In light of the COVID-19 crisis and its unprecedented economic impact, the Australian Federal Government has suspended the insolvent trading regime for an initial period of six months.
From March 25th, there will be a temporary moratorium on insolvent trading laws which gives Directors a grace period where they will not be personally liable if their businesses become insolvent.
Nevertheless, the new amendments don’t negate the fact that intensive planning needs to be done proactively if a business finds itself in this position.
Under Section 180 of the Australian Corporations Act, Directors have a legal duty of care to have full visibility over the health of their business. For Australian companies who may be struggling amid the COVID-19 crisis, there is no benefit to delaying the process of actively implementing a restructuring plan.
Given the volatility of the situation, this window should not be used for stockpiling debt to delay the inevitable, but for taking conscientious action to get full visibility across their organization and develop their strategy accordingly.
Regardless of the moratorium, Directors remain responsible for the health of the business. Now more than ever, they need to be aware of their general and statutory duties of care, as they could still ultimately face penalties for mismanagement if proper restructuring plans are not implemented early enough.

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