What is the new Coronavirus Economic Response Package Omnibus Bill 2020 (CERPO Bill) all about?
The new CERPO Bill proposed by the Commonwealth Government is intended to:
- exempt certain classes of persons (namely Directors) from specified provisions of the Corporations Act 2001 (Cth)(ACT) or Corporations Regulations 2001 (Cth) (Regulations)
- modify specified provisions of the Act or Regulations for certain classes of persons for a period of six months.
Furthermore, the power of the Minister must only be exercised if those classes of people subject to the new provisions/exemptions are directly impacted by COVID-19.
One of the most pivotal provisions of the CERPO Bill is the introduction of a new 588GAAA “Safe harbour – temporary relief in response to the coronavirus,” which intends to:
- exclude the application of the insolvent trading provisions for a six month period, subject to certain requirements; the intention being to offer Directors freedom to trade through the current COVID-19 health and economic crisis without the pressure of personal liability concerns.
The CERPO Bill also increases the threshold for a creditor to issue a statutory demand from $2,000 to $20,000:
- this new provision will provide considerable relief, particularly for companies who are typically deemed insolvent if unable to meet a statutory demand
- the time to comply with statutory demands has increased from 21 days to six months.
New ASIC Priorities
ASIC has also announced a reassessment of its priorities in light of COVID-19. Major changes include the suspension of non ‘time-critical’ matters and will ONLY prioritise other areas where:
- there is a serious risk of harm
- there is a serious breach of law
- the matter involves risks to market integrity and is time-critical.
Risks Outside Insolvency
Despite the CERPO Bill addressing insolvency as the key management liability concern arising from COVID-19, there still remains a high risk of claims from other areas. For example, claims against Directors for failing to take measures in preparation for such an event which may manifest by way of:
- insufficient IT solutions
- workplace flexibility
- contingency planning
- insurance arrangements
- cautious working capital management.
Whilst the safe harbour provision offers a sixth month liability hiatus for insolvency trading, it does NOT pinpoint the broader liabilities Directors may face with the growing pandemic.
Outside of insolvency, the likely focal point in the D&O liability arena will be:
- business preparedness
- the actions taken by management to ensure the business model, systems and procedures are robust enough to withstand the anticipated headwinds.
With you all the way
At Honan we appreciate the complex and stressful conditions currently being experienced by businesses across the globe. As always, we’re here to serve you with the most comprehensive level of cover and service through these challenging times.
Stay well – we’re with you all the way.
For more information, feel free to contact:
Henry Clark – Head of Professional and Executive Risks
Dennis Moens – Client Manager: Professional and Executive Risks