Commercial Lawyer Brisbane
The negative impact of COVID-19
How the COVID-19 pandemic has affected commercial activity
The number of businesses across Australia affected by COVID-19 now measure into the thousands and Brisbane was not immune. Many people, from employees to company CEOs and everyone in between have been exploring the need for legal support during difficult financial times as a result of the pandemic. The effects of COVID-19 have been evident thanks to research conducted by the Australian Bureau of Statistics has had tracked the effects of the pandemic since March; the impact on businesses, wages and commercial activity has been far-reaching and expected linger months, even after the number of infected cases decrease and commercial activity slowly returns to normal.
The impact on businesses and workers
During April and May, at the height of the mandatory social distancing restrictions across Australia, payroll jobs fell 1.1% in late April and early May after falling more than 7% in March.
This was because, perhaps unsurprisingly, businesses were forced to reduce their operating hours, limit their customer interactions, temporarily close their doors or, in the most extreme cases, close down forever. The lack of revenue meant operating costs needed to go down, and workers were some of the earliest victims. For example, The total reduction in employee jobs in the accommodation and food services industry deteriorated from -25.6% to -33.4%.
According to ABS’ Business Impacts of COVID-19 Survey, businesses were not only forced to reduce their workforce to stay solvent. The survey showed 55% of businesses were accessing government support, including wage subsidies and in March-April, many businesses have also been forced to restructure their business model to stay afloat. Two in five businesses (38%) have changed how they deliver their products or services, including shifting to online services, and over a third of businesses have renegotiated their lease and rental arrangements and a quarter have deferred loan repayments.
Those who have families were reported to have been forced to change their work arrangements to care for their children, including working from home (38%), reducing or changing working hours (22%), and taking leave from work (13%).
Australia’s retail turnover declined by 17.9% in April due to the unrelenting pandemic restriction. Contributors to this decline included a 17.1% fall in the food services industry and continued weakness in turnover for cafes, restaurants and takeaway food services, at around half its level in April 2019.
New temporary legislation
Fortunately, the Australian Government realised that COVID-19 would affect commercial activity in ways that Australian businesses have never experienced. The legal aspects of insolvency like, repaying debts and insolvent trading, would often not always be as previously clear cut as company directors who had failed to carry out their duties. Many businesses are facing temporary challenges and would feel the sting of insolvency legislation that could potentially affect their future
What does it mean?
New legislation
How long will it last?
Digital business
The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 amends the Corporations Act 2001 (Cth) and states:
Meetings (like AGMs) may be held using one or more technologies that give everyone entitled to attend a reasonable opportunity to participate without being physically present in the same place.
A company may execute an electronic document without using a common seal, as long as signatories clearly identify themselves and their intention in respect of the contents of the document in electronic communication.
Signatories can alternatively sign a physical copy of the document.
Signing documents
If your company goes into liquidation and your movements are restricted by social distancing regulations, under the Determination you can execute an electronic document and without a common seal, as long as:
Each person required to sign the document on behalf of the company signs a physical copy or counterpart of the document, or
Signatories use electronic communication which suitably identifies them and indicates their intention regarding the document’s contents.
You can sign documents by:
Pasting a copy of a signature into a document
Signing a PDF on a tablet, smartphone or laptop
Using cloud-based signature platforms
Meetings
The Determination ensures that companies that are required to or wish to hold a meeting, such as a creditors meeting, may do so using technology rather than face-to-face meetings. The Determination enables a quorum, votes, notices and the asking of questions to be facilitated electronically.
The Determination also allows for information required for the meeting to be circulated and accessed electronically.
Six months from 6 May 2020.
Bankruptcy
The debt threshold for creditors to apply for a Bankruptcy Notice against a debtor will increase from $5,000 to $20,000.
A debtor has up to six months instead of 21 days to respond to a Bankruptcy Notice before a creditor can commence bankruptcy proceedings.
If an individual debtor applies for voluntary bankruptcy after March 25, 2020, they are protected against unsecured creditors who cannot take further action against them for six months, instead of 21 days.
If a bankruptcy notice was issued before March 25, 2020 the original legislation applies and the you will have 21 days to comply.
Six months from 25 March 2020.
Insolvent Trading
Companies that may be at risk of insolvency in the wake of COVID-19 can continue to operate and incur debts ‘in the ordinary course of the company’s business’, without the fear of being punished for insolvent trading.
This safe harbour will protect directors from insolvent trading, but the debt incurred must be:
- In the ordinary course of the company’s business.
- During the six-month period commencing from 25 March 2020.
- Before any appointment of an administrator or liquidator during the temporary safe harbour application period.
Six months from 24 March 2020.
Debt thresholds
The minimum threshold for creditors to issue statutory demand on a debtor’s company the demand has increased from $2,000 to $5,000, and a debtor whose company was issued a demand has six months to respond instead of 21 days.
Six months from 25 March 2020.
New Legislations:
Digital business
What does it mean?
The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 amends the Corporations Act 2001 (Cth) and states:
- Meetings (like AGMs) may be held using one or more technologies that give everyone entitled to attend a reasonable opportunity to participate without being physically present in the same place.
- A company may execute an electronic document without using a common seal, as long as signatories clearly identify themselves and their intention in respect of the contents of the document in electronic communication.
- Signatories can alternatively sign a physical copy of the document.
Signing documents
If your company goes into liquidation and your movements are restricted by social distancing regulations, under the Determination you can execute an electronic document and without a common seal, as long as:
- Each person required to sign the document on behalf of the company signs a physical copy or counterpart of the document, or
- Signatories use electronic communication which suitably identifies them and indicates their intention regarding the document’s contents.
You can sign documents by:
- Pasting a copy of a signature into a document
- Signing a PDF on a tablet, smartphone or laptop
- Using cloud-based signature platforms
Meetings
The Determination ensures that companies that are required to or wish to hold a meeting, such as a creditors meeting, may do so using technology rather than face-to-face meetings. The Determination enables a quorum, votes, notices and the asking of questions to be facilitated electronically.
The Determination also allows for information required for the meeting to be circulated and accessed electronically.
How long it will last?
Six months from 6 May 2020.
Bankruptcy
What does it mean?
The debt threshold for creditors to apply for a Bankruptcy Notice against a debtor will increase from $5,000 to $20,000.
A debtor has up to six months instead of 21 days to respond to a Bankruptcy Notice before a creditor can commence bankruptcy proceedings.
If an individual debtor applies for voluntary bankruptcy after March 25, 2020, they are protected against unsecured creditors who cannot take further action against them for six months, instead of 21 days.
If a bankruptcy notice was issued before March 25, 2020 the original legislation applies and the you will have 21 days to comply.
How long it will last?
Six months from 25 March 2020.
Insolvent Trading
What does it mean?
Companies that may be at risk of insolvency in the wake of COVID-19 can continue to operate and incur debts ‘in the ordinary course of the company’s business’, without the fear of being punished for insolvent trading.
This safe harbour will protect directors from insolvent trading, but the debt incurred must be:
- In the ordinary course of the company’s business.
- During the six-month period commencing from 25 March 2020.
- Before any appointment of an administrator or liquidator during the temporary safe harbour application period.
How long it will last?
Six months from 24 March 2020.
Debt thresholds
What does it mean?
The minimum threshold for creditors to issue statutory demand on a debtor’s company the demand has increased from $2,000 to $5,000, and a debtor whose company was issued a demand has six months to respond instead of 21 days.
How long it will last?
Six months from 25 March 2020.