Directors’ duties still apply despite COVID-19 relief
The Australian Securities and Investments Commission (ASIC) has reminded companies, directors and officers faced with COVID-19 challenges to reflect on their fundamental duties to act with due care, skill and diligence, and to act in the best interests of the company.
ASIC Commissioner John Price has said the impacts of COVID-19 will require many companies to focus on and, most likely, recalibrate aspects of their corporate strategy, risk-management framework, and funding and capital management, among other things. This will require directors to reflect on which stakeholders’ interests need to be factored into decisions – including employees, investors and creditors. This continues to be the case in areas where temporary relief has been provided from specific obligations under the law, Mr Price said. For example, the Coronavirus Economic Response Package Omnibus Act 2020 has granted temporary relief for financially distressed businesses (s 588GAAA of the Corporations Act 2001). The temporary safe harbour provides relief for directors from potential personal liability for insolvent trading.
ASIC notes that a director wishing to rely on the temporary safe harbour measure “bears an evidential burden” to prove that the requirements of the temporary safe harbour provisions are met. According to ASIC, it may need to be shown that the debt was not effectively incurred before 25 March 2020. Even though temporary relief is provided from the insolvent trading provisions, ASIC said the relief does not extend to relief from statutory and common law directors’ duties. These include the duty to act in the best interests of the company as a whole (which can involve directors taking into account the interests of stakeholders beyond shareholders, including creditors, when the company is in financial distress). These duties also involve the duty to act with care, diligence and good faith and not to use a director’s position or information they have obtained as a director to gain an advantage or cause detriment to the company.
Finally, ASIC will maintain enforcement activities and continue to investigate and take action where the public interest warrants it. Whether action is taken depends on the assessment of all relevant circumstances, including what a director or officer could reasonably have foreseen at the time of taking relevant decisions or incurring debts, Mr Price said.
If you would like to know more please contact one of our accountants on 07 4639 1099 or come in and see us at 4 Bowen Street Toowoomba.