Directors will be relieved from personal liability for debts incurred under insolvent trading provisions to 31 December, in an extension of COVID-19 regulatory relief. The extension of insolvency relief, which was due to expire on 30 September, follows calls for action by the AICD given continuing COVID-19 impacts and disruption. Treasurer Josh Frydenberg said that the aim of extending relief is to “continue to provide businesses with a regulatory shield to help them get to the other side of this crisis”.
Importantly, this relief is not a “free pass” for directors, who must continue to carefully oversee the solvency of their organisations. Directors seeking to rely on the COVID-19 insolvency relief will need to be able to satisfy themselves that their company has the ability to recover quickly and return to solvent trading once relief ends.
All existing Corporations Act 2001 duties continue to apply, including that of directors to act with care and diligence, in good faith, in the best interests of the company and to not improperly use their position for personal gain. Debts incurred by the company will still be payable by the enterprise and egregious cases of dishonesty, illegal phoenix activity and fraud are rightfully subject to criminal penalties.
Learn more by visiting our dedicated COVID-19 resources hub or our FAQ page.
The government’s extension of insolvency relief is a welcome move and follows a similar announcement on virtual AGMs and electronic execution, now in force to March 2021.
The AICD has also called for extension of the temporary relief on securities class actions, where a “fault” component has been re-inserted to breaches of continuous disclosure laws until November.
We have also called for a much greater focus on NFP funding certainty and support as COVID-19 impacts continue to rock this critical sector. Looking ahead, the AICD is calling for permanent reform to governance regulations to boost growth and economic recovery. See the below box-out for the AICD’s key reform tasks.
AICD key reform tasks
The AICD is calling for permanent reforms to boost growth and COVID-19 recovery. Our priorities are:
- Better balanced director liability settings We are developing proposals for fairer protections for diligent directors, to encourage calculated risks and limit undue focus on personal liability.
- NFP funding reform Greater support is needed for the sector including harmonised fundraising regulation and improved funding certainty.
- Modernised laws We are working with government and stakeholders to update governance laws for both digital and virtual-friendly operating environments.
- Opportunistic securities class actions We have called for permanent reforms to continuous disclosure, and misleading and deceptive disclosure laws, recently appearing before a parliamentary inquiry on the need for reform. We also support the licensing of litigation funders.
Guides to governing culture and ethics
The board’s oversight of organisational culture remains a key focus for directors, including setting “tone from the top” as well as strong systems of oversight and consequence management.
Organisations with a stronger, positive culture may not only face lower risk, but may also exhibit greater resilience, boosting productivity and performance over the long term.
In response to the financial services Royal Commission, in 2019 the AICD committed to a program of work under our Forward Governance Agenda. Key themes include duties, accountability and culture.
As part of this program we launched a Director Tool on governing organisational culture, available online here. This tool can assist boards in thinking through how to embed culture in an organisation’s policies, systems and processes.
Another useful resource is the AICD’s Ethics in the Boardroom — A guide to decision-making, developed with the Ethics Centre, available here.
This guide aims to inform consideration of the ethical dimensions of complex issues encountered by directors and the board as a whole.
We encourage members to access these guides as they navigate these challenging topics.
Respect@Work — combatting sexual harassment
Workplace sexual harassment remains a serious and systemic issue in Australia, and one very much in the spotlight. Boards have a vital role to play in setting governance standards and oversight to drive real change in organisational responses.
In March, the Australian Human Rights Commission released Respect@Work, a report that followed an 18-month national inquiry into workplace sexual harassment. Through its 55 recommendations — including a call for greater governance education by the AICD — the report proposes an evidence-based framework for preventing and responding to workplace sexual harassment. This framework puts the interests of those affected by sexual harassment at the forefront.
In September, the AICD hosted a webinar with Sex Discrimination Commissioner Kate Jenkins GAICD and a panel of prominent directors on Respect@Work. The panel discussed the governance implications for directors and opportunities for new leadership to drive change.
The AICD supports the report’s findings and is committed to working with the director community on a zero-tolerance approach to workplace sexual harassment in Australian organisations.
As noted recently by AICD managing director and CEO Angus Armour: “Boards must set a clear tone from the top on their cultural expectations of management and of themselves”, with a culture of respect “first and foremost.”
Members can access a recording of the webinar here.