Coronavirus: apparent glitch in insolvency relief change?

Changes were introduced to protect firms during the virus crisis.

Directors and corporate undertakers are scratching their heads about an apparent glitch in the recent change to the law to grant safe harbour protection to boards in insolvent trading amid the COVID-19 slowdown.

The planto grant this protection suggests it only applies to companies which file for administration or liquidation prior to the end of September.

The way the law is written - with directors only to get the protection if the company files for administration or liquidation - appears directly contrary to the stated objective of the change, which was to keep companies out of administration during the crisis.

The idea was to give boards some leeway to allow them to trade out of temporary cashflow shortages, without worrying about insolvent trading restrictions.

Treasurer Josh Frydenberg has supported the move in principle, so it seems like there is simply a drafting error.

Last week the Australian Institute of Company Directors called on the government to extend the time covered by the safe harbour from the end of September.

If the government, as expected, agrees to the change, then it is even more important to clarify the apparent crafting error in the existing law.

The present amendment says the safe harbour applies “(c) before any appointment during that period of an administrator, or liquidator, of the company.”

The period in question being before the end of September.

Frydenberg on Thursday is due to hand down an economic statement that will update the government’s stimulus measures, and which may extend the safe harbour.

A spokesperson for the Treasurer did not return calls.