Directors of Australian companies have a duty to ensure that a company does not incur debts whilst insolvent. Breaching this duty can result in a director being personally liable to pay the debts the company incurs pursuant to section 588G of the Corporations Act 2001 (Cth) (Act).
The recently enacted safe harbour provisions under the Act may provide an avenue for directors to avoid personal liability, in situations where they become aware that the company is, or is becoming, insolvent and pursue a course of action which is reasonably likely to lead to a better outcome for the company.
That is, directors may not be held personally liable for debts incurred in connection with this course of action, provided that they fully informed of the company’s financial position and keep appropriately detailed records of their decisions. Growing uncertainty amidst the COVID-19 crisis requires directors to remain vigilant in responding to various courses of action and, as the exemption is retrospectively assessed, emphasises the importance of keeping detailed evidence of the decision-making process at every stage.
However, in order to attract protection under the safe harbour provisions, directors must:
1) continue to act honestly and meet their fiduciary duties to act in the best interests of the company;
2) ensure that the company complies with its obligation to pay its employees; and
3) ensure that the company meets its tax reporting obligations.
Managing employee health and safety is also a paramount consideration for Australian companies in the current climate. Under the model Work Health and Safety (WHS) laws employers are required to ensure, as far as reasonably practicable, the health and safety of their workers and others at the workplace. Whilst it is impossible to completely eliminate the risk of workers contracting COVID-19, employers must do all that is reasonably practicable to minimise that risk. This includes remaining up to date with the latest information and advice from the Australian Government Department of Health and implementing control measures such as hygiene policies, requirements that unwell employees avoid the workplace and facilities to support working remotely. As remote access and other working from home arrangements become more prevalent, it is important for business to be aware that their WHS obligations extend to employees working somewhere other than their usual workplace, including their homes.
Under the model WHS laws, directors may also be held personally liable where they fail to undertake due diligence in ensuring the business complies with their obligations under the Act. It is imperative, therefore, that directors keep up to date with work health and safety matters and ensure that the person/s conducting the business have appropriate resources available to them to minimise risks to health and safety.