Australian business owners and Coronavirus COVID-19
Australian business owners are set to be severely impacted by the effects of the Coronavirus (or COVID-19). Australian businesses, large and small, are facing an unprecedented threat with the oncoming effects of the Coronavirus. With social restrictions being increased, including the need for self-isolation, the Australian economy is set to face significant reductions including businesses experiencing low profits, issues of liquidation / voluntary administration, staff being made redundant and other financial issues.
Many Australian businesses are set up as limited liability companies (Pty Ltd’s), meaning that the liability of the Director(s), Officer(s) and Shareholder(s) are generally limited to being solely with the company itself. In these difficult times, it is important for Directors and Officers to understand their ongoing obligations, including situations in which they themselves may be made personally liable. Situations in which a Director and/or Officer is personally liable may include:
(a) breach of their duties under the Corporations Act 2001 (Cth);
(b) breach of employment laws; and
(c) breach of PAYG , tax and superannuation obligations.
Breach of Director duties
Generally, the duties owed by Directors and Officers are to:
1. exercise their duties with due care and diligence;
2. exercise their duties in good faith and in the best interests of the company;
3. not improperly use their position, or improperly use information, to gain an advantage for themselves or someone else;
4. to not trade whilst insolvent; and
5. maintain proper books and records of the company.
Amidst the economic impacts of Coronavirus, it is important for Directors and Officers to understand their continuing obligations to not trade whilst insolvent. This means that the company ought not continue to carry on a business in circumstances when it cannot pay its debts, as and when they fall due as, to do so, would mean that the company is trading whilst insolvent. In these circumstances, Directors and Officers are at risk of being personally liable for the debts incurred by the company whilst considered as insolvent.
If a company is suspected of facing insolvency, Directors who start to develop a course of action that is reasonably likely to lead to a better outcome for the company, may rely on the Safe Harbour defence pursuant to section 588GA of the Corporations Act. Although not clear as to what is considered to be steps to achieve a better outcome for the company, section 588GA(2) of the Act does provide for some examples. These include the person:
1. properly informing himself or herself of the company’s financial position; or
2. taking appropriate steps to prevent any misconduct by officers or employees of the company that could adversely affect the company’s ability to pay all its debts; or
3. taking appropriate steps to ensure that the company is keeping appropriate financial records consistent with the size and nature of the company; or
4. is obtaining advice from an appropriately qualified entity who was given sufficient information to give appropriate advice; or
5. is developing or implementing a plan for restructuring the company to improve its financial position.
Breach of employment laws
The laws governing the relationship between employees and employers are generally found within the Fair Work Act 2009 (Cth). With self-isolation restrictions and general downturn in profits, many businesses are being required to close down temporarily, have their workers work from home or significantly reduce hours. It is important for business owners, including Directors and Officers, to be aware of their ongoing responsibilities, and the consequences of breaching these.
In summary, business must continue to abide by all workplace laws, Enterprise Bargaining Agreements, Awards and employment contracts unless contradictory to the imposed government restrictions. Please click the following link regarding information on Novel Coronavirus COVID-19 and the workplace.
Under section 550 of the Fair Work Act persons who are knowingly involved in a contravention of the Act are found to have themselves contravened the Act. For example, this means that if a business owner, Director or Officer have been found to have been involved in the non-payment of staff, breach of an Award or otherwise, they themselves may be liable for penalties under the Act.
Due to this, we encourage business owners to abide by all current employment laws and monitor any changes to these laws as the Coronavirus issue continues.
PAYG, tax and superannuation
Business owners would be well aware of the obligations to pay their PAYG and other tax obligations, as well as their employees superannuation contributions. With the Coronavirus’s increasing impact on businesses, many will face the likelihood of becoming insolvent and going into liquidation/voluntary administration. In this regard, it is important for business owners and Directors to be aware that, should their business/company cease to trade, they may still face personal liability themselves for any unpaid PAYG tax and superannuation contributions.
We encourage business owners to continue to monitor the governments announcements in relation to businesses. This includes the government’s recent announcement for certain businesses to receive PAYG tax refunds, as well as financial assistances for the payment of apprentices. For more information as to these financial assistance policies, please visit the ATO’s website regarding Coronavirus COVID-19.
With the ongoing nature of Coronavirus, we expect to see ongoing government response and changes to applicable laws and regulations. We encourage all businesses to monitor these changes as and when they are announced so as to avoid any unwanted personal liabilities.
The above has been provided for your information and is not to be relied upon as legal advice. Advice may differ depending on a number of factors, including the continued updates from the government. If you wish to discuss your specific concerns as to your own personal liabilities in regards to your business, please do not hesitate to contact our office on 9832 0608 or email us on firstname.lastname@example.org to get in contact with one of our lawyers.
LGM Advisors is a leading commercial litigation Melbourne professional law firm, the experts to contact when you require commercial lawyers and employment lawyers. LGM Advisors have the skills, experience and expertise to ensure that you and your dispute is consulted upon with the utmost professionalism. Contact LGM Advisors today on (03) 9832 0608 or by email at email@example.com.
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