COVID-19/Coronavirus Government emergency law - Directors excused from insolvent trading

Under the Corporation Act 2001, directors are personally liable if a company trades while insolvent.

Ordinarily board of directors under pressure ought to enter into an insolvency process if there is any risk that the company will experience periods where it will be trading while insolvent.

To buy confidence, and assist companies to have confidence to continue to trade through the Coronavirus health crisis with the aim of returning to the black when the crisis has passed, directors are to be temporarily relieved of their duty to avoid insolvent trading with respect to any debts incurred in the course of the company’s business. 

These ‘pardon’ will relieve a director from personal liability that would otherwise be associated with insolvent trading. The emergency pardon will apply for six months at this stage.

Cases of dishonesty and fraud will still be subject to the usual criminal penalties.

Important note about insolvent trading

Any debts incurred by a company will still be payable by the company. This is not a moratorium on debt simply a moratorium on the finding of insolvent trading.

What should you do?

Contact Merlo Law for advice and assistance now.

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This publication considers legal and technical issues in a general way. It is not intended to be legal advice. Any legal advice is qualified on the basis that the reader should immediately confirm the information relied upon with Merlo Law. We look forward to being of assistance.