As a part of its announcements on Sunday 22nd March 2020, The Federal Government has communicated that directors would be exempt from personal liability for trading while insolvent for six months as part of its response to COVID-19.
This is welcome news for the small to medium business community with many organisations likely to face unprecedented disruption in the coming months. This will give directors more confidence to trade through this crisis rather than place a business into administration, with the costs and job losses that entails.
Importantly, even though not personally liable for debts incurred, directors will still need to manage their general duties including to act in the best interest of the corporation and with due care and diligence, during these extremely trying times. These duties can change in nature during situations of insolvency, with the rights of creditors needing to be factored into board decision-making.
Separately the Government intends to grant the Treasurer powers to exempt companies from Corporations Act requirements during these times, including with respect to the holding of physical annual general meetings.