As the effects of COVID-19 continue to manifest themselves in our economy, the legal landscape continues to change in response. In some circumstances, it is now even more important than ever to seek legal advice. Should you require assistance in any of the areas outlined below, please contact one of our highly experienced lawyers today on (07) 5526 0157.
COVID-19 is impacting Australia and the rest of the world in ways not seen since World War 2. The number of people contracting the virus and the number of fatalities is increasing on a daily basis. The financial impact of the virus is manifesting itself through significantly declining share values, job losses and declining property prices to name a few. As a consequence of the financial impact caused by COVID-19, Australia is expected to enter a recession for the first time in 29 years.
We at Marino Law are seeing first hand on a daily basis how COVID-19 is currently impacting commercial dealings in a number of areas including debt recovery, commercial litigation, contractual matters, employment matters, insolvency and property.
As COVID-19 continues to have a significant impact on businesses, we are being approached by clients to provide advice and act for clients with respect to the recovery of an increasing amount of unpaid debts.
Up until this week, generally the most expeditious and cost effective way to recover a debt or enforce a Court judgment was to issue a creditors statutory demand for debts owed by corporate entities for sums greater than $2,000.00 and a bankruptcy notice for debts owed by individuals for sums greater than $5,000.00. As a consequence of amendments to the Bankruptcy Regulations 1996 (Cth), the Bankruptcy Act 1966 (Cth), the Corporations Regulations 2001 (Cth) and the Corporations Act 2001 (Cth) that were passed by parliament on Monday 23 March 2020, for at least the next six (6) months, those methods of recovering a debt are now less attractive.
Pursuant to the amendments to the above legislation:
- the time within which:
- an individual debtor is required to comply with a bankruptcy notice; and
- a corporate debtor is required to comply with a creditors statutory demand,
is temporarily extended from 21 days to six (6) months;
- there are now temporary increases to the threshold at which creditors can issue a:
- bankruptcy notice (from $5,000.00 to $20,000); and
- creditors statutory demand (from $2,000.00 to $20,000.00).
The above measures will obviously make the process of debt recovery via the issuance of bankruptcy notices and statutory demands less expeditious.
Please note that debts can still be recovered by commencing Court proceedings, however those proceedings are significantly more costly and time consuming when compared to the previous processes associated with the issuance of bankruptcy notices and creditors statutory demands.
The Courts are adopting various measures to try and contain and limit the spread of COVID-19. Those measures range from ensuring Court appearances are conducted by telephone where possible to the adjournment of trials altogether. Such measures will obviously have a significant impact on the expeditious conduct of Court proceedings in the foreseeable future.
At Marino Law we are also seeing a reluctance on the part of litigants and the Courts to order the mediation of disputes on a face to face basis. To limit the spread of COVID-19, parties and the Courts are looking to conduct mediations via video-link and telephone for instance. Parties looking to adopt such measures need to consider whether such measures will result in the conduct of an effective mediation.
As a consequence of the financial stresses that the spread of COVID-19 are causing in the economy, we are seeing a significant increase in enquiries from contracting parties requesting advice as to the circumstances in which commercial contracts can be terminated in response to the virus. As the government responds to COVID-19 through border lockdowns and business closures, the ability of contracting parties to meet their contractual obligations is being severely impacted.
Whether parties have the ability to terminate contracts in the above circumstances will depend on the wording of the contracts involved. Commercial contracts will often include force majeure clauses pursuant to which the contracting parties may have the ability to terminate the contract in various circumstances such as times of war and civil unrest for example. Depending on the wording of the contracts involved, the contract may be able to be terminated as a consequence of the impact of COVID-19.
In some circumstances, a supervening event may occur after a contract has been formed that renders performance of the contract impossible. In those circumstances, the contract is said to have been discharged by frustration and the parties are released form further obligations under the contract. Accordingly, it may be possible to terminate a commercial contract on the basis that the contract has been frustrated due to the impact of COVID-19.
A contract will be frustrated where, without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a circumstance radically different from that which was undertaken by contract. To determine whether a contract has been frustrated requires a consideration of the terms of the contract and the effect of the supervening event. Generally, a contract will only be frustrated by an event that was not foreseeable by the parties at the time the contract was entered into.
The spread of COVID-19 and the financial impact it is having on the economy is leading to a significant number of businesses standing down and terminating employees. Employers should be mindful of the various obligations owed to their employees pursuant to the Fair Work Act 2009 (Cth) and any applicable awards. By way of example, before making decisions to make employees redundant, employers must ensure that they abide by any consultation requirements detailed in any applicable awards.
Employers must also take steps to ensure that they comply with workplace health and safety laws. Pursuant to these laws, employers are required to provide a safe workplace for employees. This would oblige employers to take appropriate steps through the introduction of policies for example regarding workplace hygiene to prevent the spread of COVID-19.
Employees, in particular causal employees, are being severely affected by COVID-19. Employees are losing their jobs as their employers react to the financial burden imposed upon them by COVID-19. There are a significant number of support packages that have been introduced by the government and the banks that can be drawn upon to assist employees who have lost their jobs or been stood down.
Casual employees who contract the virus or are in self-isolation are obviously unable to earn an income while in isolation. In this regard new legislation may soon be introduced to enable casual employees to have access to paid sick leave while in isolation for example.
Given the financial impact COVID-19 is causing in the economy, it is not surprising that we have seen an increase in the number of individuals and companies seeking advice with respect to personal and corporate insolvency. Individuals and companies under severe financial stress are considering bankruptcy and external administration where relevant. Advice with respect to personal liability of directors for insolvent trading is regularly sought.
In response to the financial impact COVID-19 is wreaking on the economy, the government has introduced a number of measures to assist businesses. A number of significant financial assistance packages have been introduced by the government and the banks that are designed to enable businesses to continue to trade through the coming months. The insolvent trading laws in the Corporations Act 2001 (Cth) have also been amended such that a director will not be personally liable for debts incurred during the next six (6) months where the company to which they are appointed is insolvent as long as those debts are incurred during ordinary course of the company’s business.
While companies benefit from the temporary financial assistance and relief from liability for insolvent trading, they are presented with an opportunity to restructure their operations so that their businesses can continue to operate solvently once the temporary assistance stops. Businesses should be seeking appropriate advice with respect to such restructures. Businesses should also consider taking the opportunity to do deals with their creditors so as to reduce their debt levels so that they come back in better financial shape when the current crisis ends.
Real Property Related Matters
We have seen a marked increase in enquiries from commercial tenants looking to exit leases of commercial properties as a consequence of the financial distress their businesses are encountering in response to COVID-19. In these circumstances, lease terms should be closely reviewed to determine whether the tenant has a right to terminate the lease in question. The existence of force majeure clauses and rights to terminate a frustrated construct as detailed earlier may also be relevant in these circumstances.
In the current uncertain economic climate, commercial landlords may be prepared to accept reduced rent from commercial tenants for a specified period if it means that the tenant may continue to trade and operate from the premises in the future.
We are also seeing an increase in the number of instances where purchasers of real property are trying to terminate purchase contracts where they no longer have the financial ability to complete such contracts or they have concerns with respect to the value of the property being purchased due to the financial impact on the economy caused by COVID-19. Obviously termination is possible pursuant to finance conditions for example, however, termination of unconditional contracts is a far more difficult proposition. In those circumstances advice needs to be sought with respect to any vitiating conduct such as misleading or deceptive conduct on the part of the seller or its agent that would entitle the purchaser to terminate the contract.
Parties to real property sale contracts should also consider including special conditions in their contracts that will enable settlement to be extended should one of the parties contract COVID-19 and be placed into self-isolation.
As the effects of COVID-19 continue to manifest themselves in our economy, the legal landscape continues to change in response. In those circumstances, it is now even more important to seek legal advice with respect to the matters raised in the above paragraphs.
Should you require assistance in any of the above areas, please contact one of our highly experienced lawyers today on (07) 5526 0157.