Be Excellent to Each Other - Goodwill in the Time of Crisis

There has been a lot of media attention around the government stimulus to help COVID-19 affected businesses.

From the JobKeeper payments, to the Insolvent Trading Safe Harbour and the Leasing Code there is a strong suite of protection in place, and we are receiving quite a few calls regarding how these measures will work to assist individual businesses circumstances.

JobKeeper

Whilst $1500 per employee sounds good in theory, there are going to be a lot of businesses that can’t get over the hurdles to qualify.

For starters it leaves applicants with a big hole in their cash flow, payments have to be made to employees now, and the government will reimburse in early May. The government recommends businesses approach their bank to cover the shortfall but from what we are hearing, the banks aren’t keen on taking the risk.

Insolvent Trading Safe Harbour

If your company incurs a debts between 25 March and 25 September 2020 a Liquidator cannot hold you personally liable for those debts with an Insolvent Trading claim. That should help the company incurring the debt, but what about their creditors? The buck has to stop somewhere.

Also beware whilst Insolvent Trading has been relaxed, Directors duties laws have not, so directors must still act in the best interests of the company, and it’s creditors.

Leasing Code

State Governments are moving to legislate Leasing Codes as we speak. The suggested model from the commonwealth sets rules preventing evictions for the COVID period, and suggests landlords and tenants share any burdens or benefits that flow from rent reductions or mortgage freezes.

Informal Assistance

We are also starting to see an atmosphere of lenience developing. Creditors are becoming less likely to pursue debtors under personal guarantees. The ATO have said they’ll remit interest and penalties and withhold enforcement actions including director penalty notices.

It seems likely that so long as a director can genuinely point to COVID-19 as the cause of their business downturn, the powers that be will be reluctant to come down with the full force of repercussions in the areas that formal measures do not cover. That being said (and as always) be wary! This “aura of understanding” is going to dry up pretty quickly once restrictions are lifted and businesses are faced with the harsh reality of a post lock down world. Who’s to say what that will mean for temporary measures not specifically covered by legislation.