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Update: COVID-19 factsheet – changes at the Federal and State level

17 September 2020

#Corporate & Commercial Law, #Workplace Relations & Safety, #COVID-19

Published by:

Madison Tonkes

Update: COVID-19 factsheet – changes at the Federal and State level

The COVID-19 pandemic is creating a number of significant challenges for Australian businesses.

To assist organisations in navigating this unchartered territory, we summarise the key legal issues impacting business as well as Australian and Victorian Government measures in place.

Can creditors still issue statutory demands?

Yes.
However, the Australian Government has temporarily increased the threshold for creditors issuing a statutory demand under the Corporations Act 2001 from $2,000 to $20,000. 

The Federal Government has announced that this measure will be extended through the Regulations to the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (Regulations) and extension will now apply until 31 December 2020.
Please note that the Regulations have not yet been released.

Are the timeframes for responding to a statutory demand the same?

No.
The statutory timeframe for responding to a statutory demand has been increased temporarily from 21 days to six months, meaning you will have six months to respond to a statutory demand. The Federal Government has announced that this measure will be extended through the Regulations and will now apply until 31 December 2020.

Can creditors still initiate bankruptcy proceedings?

Yes.
However, the Australian Government has temporarily increased the threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings from $5,000 to $20,000. The Federal Government has announced that this measure will be extended through the Regulations and will now apply until 31 December 2020.

Are the timeframes for responding to a bankruptcy notice the same?

No.
The time a debtor has to respond to bankruptcy proceedings has been temporarily extended from 21 days to six months.
The Federal Government has announced that this measure will be extended through the Regulations and will now apply until 31 December 2020.

Can creditors still enforce debts against companies or individuals?

Yes.
Creditors are still able to seek recourse through the courts.

Will directors be personally liable for insolvent trading?

Not necessarily.
Directors will not be personally liable for insolvent trading and are temporarily relieved of their duty to prevent insolvent trading in relation to debts incurred in the ordinary course of business. The Federal Government has announced that this measure will be extended through the Regulations and will now apply until 31 December 2020.
However, egregious cases of dishonesty and fraud will remain subject to criminal penalties and any debts that are incurred by the company will remain payable by the company.

Can you rely on COVID-19 to avoid performance under a contract?

Maybe.
This will depend on the contract itself. The contract may contain a “Force Majeure” clause which may cover instances such as pandemics. If the clause does not provide specific relief then it is unlikely to provide any entitlement to relief as such clauses are narrowly construed. For further advice, click here.

If there is no force majeure clause, is there any way to terminate the contract?

Maybe.
There may be grounds to argue that the contract has been frustrated. This will apply where the contract can no longer be performed or the contractual obligation has become fundamentally different than what was originally envisaged, through no fault of either party. Importantly, it is not enough that a party endures hardship or an economic downturn to rely on frustration.

Will consumer law guarantees still apply to the supply of services?

Maybe.
The ACCC has released guidance that if a trader is unable to perform contractual obligations due to a government ban, the services may be deemed illegal and consumer law guarantees will not apply. In this instance, the parties will need to refer to the contract to determine the rights of the parties. Further information can be found here.

As a public company, do we still need to hold an AGM?

Yes.
However, for companies with a 31 December financial year, ASIC has announced that it will take no action against those entities if they need to postpone their AGM until the end of July or they choose to hold a ‘virtual meeting’. 

In May 2020, the Treasurer announced temporary reforms to the Corporations Act so that organisations can effectively hold AGMs during the pandemic. These changes allow boards to provide a notice of a general meeting via email, ensure quorum requirements may be satisfied online as well as the ability to hold virtual general meetings instead of ‘in person’ meetings. These new rules also apply to Insolvency Practice rules.

What are the requirements to hold a virtual general meeting?

A virtual general meeting is one where the members are to attend electronically and there is no physical location for the meeting.

The new rules for virtual meetings require the following:

  • the notice of the virtual meeting must clearly and concisely explain how members are to access the meeting and how they may participate in the meeting (including how they are to use the technology to vote, ask questions and comment). The technology used to run the virtual meeting must give all attendees a reasonable opportunity to participate
  • details of an email address (or other submission facility) must be provided to members for the service of proxy appointments
  • all votes conducted during a virtual meeting must be taken on a poll and not using the ‘show of hands’ method.

Importantly if there are technical difficulties that result in members being unable to reasonably participate, the meeting should be adjourned until the problem is fixed. In this case, an extension of a statutory timeframe may be required.

ASIC also advises companies and responsible entities to assess and test the virtual meeting technology prior to the meeting and to consider backup solutions in the event of any technical difficulties.

Is there any relief available for firms seeking to raise capital?

Yes.
ASIC has recently announced that a number of temporary relief measures introduced in order to address COVID-19 challenges will come to an end in October 2020. These amendments include:

  • the earlier amendment to the ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547 will be repealed on 2 October 2020 (six months after the amendment commenced)
  • the ASIC Corporations (Trading Suspensions Relief) Instrument 2020/289 will be repealed on 2 October 2020 (six months after it commenced)
  • the ASIC Corporations (COVID-19 – Advice-related Relief) Instrument 2020/355 will be repealed on 15 October 2020 (six months after it commenced).

One of the ASIC relief measures which are due to expire, allows low doc placements, entitlement offers and share purchase plans where an entity has been suspended for a maximum of 10 days (in the 12 months before the offer, and the entity was not suspended for more than five days in the 12 months before the offer and ending on 19 March 2020). This relief was brought in to provide some reprieve for several entities that had already been suspended for more than five days as capital raising preparations have taken longer due to the impacts of COVID-19. This temporary capital raising relief measure will come to an end on 2 October 2020.

Entities do not need to make an individual application to ASIC to rely on these temporary relief measures.

The ASX has also extended their emergency capital raising relief measures that were introduced on 31 March 2020 until 30 November 2020.

These temporary relief measures include: 

  • increasing the 15 per cent limit on placement capacity to a cap of 25 per cent – which will allow entities to raise a greater amount of capital whilst decreasing the dilutive impact
  • waiver of the one-for-one ratio on non-renounceable entitlement offers – this will mean that, as long as it is fair and reasonable to do so, entities will be allowed to use a greater ratio for non-renounceable entitlement offers in order to meet the threshold for their capital raising requirements
  • two consecutive trading halts permitted – this will allow entities to request two days back-to-back trading halts, meaning the entity will halt for a period of four days in total. This will give the entity greater time for consideration and flexibility to carry out the capital raising and without suspending trade on its existing shares.

Importantly, any entity seeking to rely on these temporary relief measures must notify the ASX in writing and include details of the capital raising of how the relief measure will seek to address the challenges of COVID-19.  

In addition, the ASX has announced that the relaxation of continuous disclosure obligations will continue until 30 November 2020. This means that for listed entities facing unprecedented market conditions due to the COVID-19 pandemic, their obligations of continuous disclosure do not extend to predicting the unpredictable.

Can employers stand down their employees during a stoppage of work?

Maybe.
Under s524 of the Fair Work Act 2009 (Cth) (FW Act), an employer may stand down an employee during a period in which the employee cannot usefully be employed because of, “…a stoppage of work for any cause for which the employer cannot reasonably be held responsible”.

Directives from the State and Federal Government to shut-down the respective business would mean that an employer could utilise s524 of the FW Act.

In the first instance, we recommend you liaise with us if you are an employer or employee and have or are contemplating s524 of the FW Act.

How does this affect a business's tax implications and cash flow?

The ATO has announced that it will boost cash flow of small businesses who are suffering during the downturn caused by COVID-19 by providing two payments totalling up to $100,000.
Further information can be found here.

Are there any other wage subsidies for businesses?
Yes.

The JobKeeper Payment scheme (Scheme) provides payments to eligible employers for up to six months for each ‘eligible employee’ that was on their records as of 1 March 2020 and continues to be engaged by that employer. Employers receive $1,500 per fortnight per eligible employee and every eligible employee must receive $1,500 per fortnight before tax.

This Scheme has now been extended from 27 September 2020 until 28 March 2021. However, from 28 September 2020, new eligibility requirements will apply, payment rates will be decreased and payments will be paid at two different rates.

From 28 September 2020, businesses and not-for-profits will be required to assess their eligibility for the Scheme with reference to their actual turnover in the September 2020 quarter.

In order to be eligible for the JobKeeper extension, businesses and not-for-profits must demonstrate during the September quarter (28 September 2020 – 3 January 2021) they have experienced a decline in actual GST turnover of:

  • 50 per cent for those with an aggregated turnover of more than $1 billion;
  • 30 per cent for those with an aggregated turnover of $1 billion or less; or
  • 15 per cent for Australian Charities and Not for profits Commission-registered charities (excluding schools and universities).

In addition to the changes in eligibility requirements, from 28 September 2020, the payment rate of $1,500 per fortnight per eligible employee (must work for at least 20 hours or more on average in the month before 1 March 2020 or 1 July 2020) will be reduced to $1,200 per fortnight, and from 4 January 2021 the payment will be further reduced to $1,000 per fortnight.

Further, from 28 September 2020, lower payment rates will apply for employees that have worked fewer than 20 hours a week on average. From 28 September 2020, these workers will receive a payment of $750 per fortnight and from 4 January 2021 this payment will be reduced to $650 per fortnight.

If a business or not-for-profit does not meet the turnover test for the JobKeeper extension, this will not impact their eligibility for the Scheme prior to 28 September 2020.

Businesses and not-for-profits must nominate the payment rate they are claiming for each of their eligible employees.

Changes in Victoria

Stage 4 Restrictions in Victoria – how will this impact your business?

The Victorian Government has recently announced significant restrictions for businesses operating in metropolitan Melbourne and regional Victoria, with workplaces closed from 11:59pm on Wednesday, 5 August, unless specifically permitted.

While the treatment of workplaces under the new restrictions differs from industry to industry, the Victorian Government has announced three different categories of restrictions that apply to businesses.

1. Businesses to remain open

Businesses that are permitted to remain open include:

  • supermarkets and grocery stores
  • liquor stores
  • petrol stations
  • post offices
  • pharmacies
  • banks
  • motor vehicle parts (for emergency repairs only)
  • retailers and takeaway food outlets (for ‘click and collect’ or delivery services only).

2. Business is open with a significantly reduced capacity for on-site work

These businesses include:

  • warehouses and distribution centres, which are to be limited to no more than two-thirds workplace capacity at any one time
  • the construction sector, which is to operate at ‘pilot light’ levels. For major sites (more than three stories), this means only 25 per cent of the normal workforce is to be onsite, and for small sites, only a maximum of five people can be onsite.
  • meatworks and abattoirs, which are to be scaled back to two-thirds workplace capacity onsite at any one time.

All businesses that are able to remain open must enact a COVID-Safe Plan focused on safety, prevention and response in the event that a case of COVID-19 is linked to that workplace. If you require a COVID-Safe Plan, WorkSafe Australia has a helpful resource kit that you can find here.

3. Business is closed for the duration of stage 4 restrictions

All other workplaces are required to close from 11:59pm on Wednesday, 5 August. The Victorian Government has published a comprehensive list of which businesses are permitted to continue operating here.

Importantly, sole traders can continue to operate if they do not have contact with the public, or with people other than those living in their primary household.

What support is available for Victorian businesses under the Business Support Fund?

The Victorian Government has recently announced a third round  of the Business Support Fund which will be open for applications on 18 September 2020. The expansion provides one-off grants to a range of eligible businesses, including grants ranging from $10,000 to $20,000 for employing businesses in Victoria.

Businesses which have already received a Business Support Fund - expansion grant, or have applied for one, will not need to re-apply. Successful applicants will automatically receive this additional allocation.

Businesses will be eligible if they:

  • operate a business located within Victoria
  • be a participant in the Commonwealth Government’s JobKeeper payment scheme
  • employ people
  • be registered with WorkSafe
  • have an annual payroll of less than $10 million in 2019-20
  • be registered for Goods and Services Tax (GST)
  • hold an Australian Business Number (ABN) and have held that ABN
  • be registered with the responsible federal or state regulator.

For more information about how these restrictions may impact your businesses, click here

The third round of the Business Support Fund will open on 18 September 2020 and will provide eligible businesses:

  • $10,000 if annual payroll is less than $650,000
  • $15,000 if annual payroll is between $650,000 and $3 million
  • $20,000 if payroll is between $3 million and $10 million.

What additional support is available to Victorian businesses under the Business Survival and Adaptation Package?

On 13 September 2020, the Victorian Government announced its $3 billion Business Survival and Adaptation Package in order to help businesses that are impacted by the ongoing restrictions, and also to assist businesses in adapting to a new COVID normal.

The support available under the new Business Support and Adaptation Package includes:

  • grants of up to $30,000 for licensed venues (this will vary based on their capacity and location)
  • a grants program of $3 million in total to support metropolitan and regional business chambers and trader groups
  • alpine businesses can receive a grant of up to $20,000 to assist in a service charge to Alpine Resort Management Boards
  • approximately 30,000 eligible sole traders can access grants of up to $3,000 if they operate from a commercial premises or location and the sole trader is a tenant or licensee.

The Victorian Government has also announced several grants and funds to assist businesses in adapting to the new COVID normal. These include a $20 million voucher program to assist sole traders and small businesses to expand their digital capability and the $87.5 million Outdoor Eating and Entertainment Package to support the hospitality industry. 

What waivers and deferrals are available to assist Victorian businesses?

The Victorian Government is also providing a number of waivers and deferrals for Victorian businesses through the Business Survival and Adaptation Package. These include:

  • the deferral of:
    • payroll tax for businesses with payrolls of up to $10 million for the 2020/21 financial year
    • the planned increase to the landfill levy for six months.
  • the 50 per cent stamp duty discount for all commercial and industrial property in regional Victoria will be brought forward
  • a waiver of:
    • 25 per cent of the Congestion Levy for 2020 and outstanding balances deferred
    • liquor licence fees for 2021
    • Vacant and Residential Land Tax for vacancies in 2020.

What is the payroll tax refund being offered by the Victorian Government?

The Victorian Government will provide full payroll tax refunds for the 2019/20 financial year for small to medium sized businesses.
Payments commenced on 27 March 2020.

Is my business eligible for the Victorian Government's payroll tax refund?

To be eligible the business must have an annual payroll of up to $3 million.

Are businesses able to access any relief for rent of their commercial premises?

Only commercial tenants in government buildings can apply for rent relief. Private landlords are being encouraged by the Government to adopt this move.

Will businesses still be required to pay land tax?

No.
Small businesses are able to defer their land tax payments for the year 2020. The Victorian Government has not provided any further guidance as to what amounts to a “small business” for these purposes.

Do hospitality venues still have to pay liquor licencing fees?

No.
The Victorian Government has waived the requirement to pay liquor licence fees for 2020 for affected venues.

Next steps

If you are a business or an individual and consider your business or yourself to be affected by COVID-19 and the legislation changes on a Federal and State level, please do not hesitate to contact us.

Authors: Nick Hornstein & Madison Tonkes 

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Madison Tonkes

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