The Australian Institute of Company Directors (AICD) has applauded the Federal Government’s extension of the director liability moratorium for insolvent trading.
The measure, which temporarily removes the personal liability that directors face if a company trades while insolvent, has now been extended until 31 December 2020. It was due to end this month.
AICD Managing Director and CEO, Angus Armour, said, “This is a welcome move which will continue to give organisations more options to manage the impacts of COVID-19, without the pressure to move to formal insolvency or wind-up immediately.
“We are six months into a COVID-19 challenge that will extend for 18 months or longer. With this measure extended, many businesses will now be able to weather the immediate storm, which in the long-run will be a better outcome for the Australian economy.
“It’s important for directors to remember that their duties remain intact and that this is in no way a ‘free pass’. Directors must continue to assess the ongoing financial liability of their organisation, and, critically, the impact of incurring further debts. Their core duties remain; this is an opportunity to strike a path through the crisis and not an invitation to illegally phoenix companies.”
The AICD’s COVID-19 member survey, released in June this year, revealed that 16 per cent of small-and-medium enterprises said the temporary relaxation of insolvent trading laws had influenced their decision to continue trading through the crisis.
In July, the AICD called for an extension of this relief along with an extension to the amendments which re-insert a fault element into continuous disclosure laws.
The amendments to continuous disclosure laws are currently due to expire on 26 November 2020. The AICD continues to call for these to be extended as well as the application of similar relief for misleading and deceptive conduct laws, given the ongoing economic uncertainty and market volatility generated by COVID-19.
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