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Danger – COVID-19 Safe Harbour Flaw Requires URGENT External Administrator Appointment

A fatal flaw exists in the government’s COVD-19 safe harbour legislation. This means directors must appoint an external administrator to their company on or before 24 September 2020, if they wish to take advantage of the COVID-19 safe harbour protection from insolvent trading.

At the beginning of the global pandemic the Australian Federal Government introduced temporary legislation to protect directors from liability for insolvent trading during the global COVID-19 pandemic. This safe harbour protection from insolvent trading will excuse directors for liabilty in respect of debts incurred in the ‘ordinary course of business’ during the operation of the temporary legislation, presently due to expire at the end of 24 September 2020.

However, for reasons which are not clear, but possible linked to the urgency with which the legislation was passed, the drafters included an additional fundamental and crucial requirement to gain the benefit of this COVID-19 safe harbour protection from insolvnt trading. That requirement is that in order to gain this COVID-19 safe harbour protection, an external administrator (either a voluntary administrator or a liquidator), must have been appointed before the legislation expires at the end of 24 September 2020.
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New! Key Changes to the Covid Leasing Rules for Landlords and Tenants

The Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2020 (NSW) (the Amendment) commenced on 3 July 2020 and changes some of the rules affecting retail/commercial landlords and tenants when it comes to the impact of COVID-19.

 

Background

The Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) (the Regulation) commenced operation on 24 April 2020.  The Regulation gave effect to the National Cabinet Mandatory Code of Conduct for Commercial Leases (the Code).

Key aspects of the Regulation include:

  • an “impacted lessee” (that is, a tenant under a retail or commercial lease in NSW who qualifies for JobKeeper and has turnover of less than $50 million for FY18/19) is, amongst other things, entitled to re-negotiate the rent payable under their lease
  • a landlord cannot take any “prescribed action” against an impacted lessee (such as eviction, termination of the lease, or calling on any security provided by the tenant) due to non-payment of rent or outgoings during the “prescribed period” (ie, a period of 6 months commencing on 24 April 2020)
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Impacts for Commercial Leases & Commercial Contracts

COVID-19 – Impacts for Commercial Leases & Commercial Contracts

Commercial Leases

The Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) (the Regulation) commenced on 24 April 2020.  The purpose of this Regulation is to give effect to the National Cabinet Mandatory Code of Conduct for Commercial Leases (the Code) which was announced by the National Cabinet on 7 April 2020.

Key aspects of the Regulation include:

  • the Regulation applies to both retail leases and commercial leases
  • to qualify for relief, the tenant must be an “impacted lessee” – that is, they qualify for the JobKeeper program and have turnover of less than $50 million for the 2018-2019 financial year
  • a landlord cannot take any of the “prescribed actions” against an impacted lessee (such as evicting the tenant, terminating the lease, re-entering the premises, or calling on a security bond or guarantee given by the tenant) due to non-payment of rent or outgoings during the “prescribed period” (ie, 6 months after the commencement date of the Regulation which is 24 April 2020)
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COVID-19 – What do Force Majeure and Frustration mean for contracts?

Due to the economic downturn caused by COVID-19,  Matthews Folbigg Lawyers has been receiving a lot of enquiries from clients seeking advice in relation to contracts with a view to either getting out of their contracts or alternatively, seeking to enforce their contracts.

Two relevant legal concepts in this landscape are force majeure and frustration.

Force Majeure

Force majeure is a French term meaning “superior force”.

Many contracts contain a force majeure clause, the key features being:

  • a set of defined events referred to as an “event of force majeure” – this could include war, terrorism or natural disasters, but could also include events relevant to COVID-19, such as epidemic, pandemic, or acts or restraints by government authorities

 

  • typically, the force majeure clause will provide that where a force majeure event is preventing, restricting or delaying performance under the contract, the parties that are affected by the force majeure event will be excused from performing under the contract for the duration of the force majeure event
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Code of Conduct for Commercial Tenancies – Released

By Anica Cunanan, Law Clerk at Matthews Folbigg Lawyers

Undeniably, the financial impact of COVID-19 has triggered a myriad of changes to the laws. The National Cabinet has released a mandatory Code of Conduct in relation to the commercial property sector. This sets out the principles to be applied to adjustments to rent during the COVID-19 pandemic.

The Code is based upon a series of good faith principles to be applied to commercial tenancies during this unprecedented time. It will apply to those tenants who are eligible for the JobKeeper programme, with annual turnover of up to $50 million (“SME Tenants”).

The Code of Conduct includes the following:

  • Landlords should not terminate due to non-payment of rent during the COVID-19 pandemic period;
  • Proportionality to rent reductions based on the tenant’s decline of turnover;
  • ‘Tailored’ and ‘bespoke’ solutions to be negotiates between landlords and SME Tenants; and
  • A mix of at least 50% waivers and the balance of deferrals in respect of rent obligations.
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Critical Covid Response Items for EVERY Business and Employer

COVID-19

Critical Covid Response Items for EVERY Business and Employer

Business Contracts and Leases

Key questions to ask yourself in an effort to reduce losses being suffered:

  • can I use contractual and leasing force majeure provisions due to events beyond my reasonable control to cancel, suspend or renegotiate my contracts and leases?
  • what happens if I don’t have a force majeure provision?
  • can I use the “frustrated contracts” regime to my advantage?
  • is Covid a “material adverse event” for contractual purposes?
  • what time limits apply to exercise my rights and are there any mandatory procedural requirements I must follow to do so?

As the interaction between contractual wording, legal considerations, and the outcome sought are inherently fact specific, if you would like to discuss your options we invite you to contact a member of our Commercial Law Team on 9635 7966.

Staff

Does your contingency planning take into account these fundamental matters:

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ALERT: COVID-19 Impact on Working Holiday Visa Holders

Questions

Are you:

 

  • on a Working Holiday visa subclass 462 that is about to expire?

 

  • worried about the pandemic crisis preventing you from returning home?

 

New Rules

The Australian Government has recently announced changes to its policy which allows visa subclass 462 holders to extend their stay if they have completed either 3 months or 6 months of volunteer or paid bushfire recovery work in specified areas of Australia, including:

 

  • construction, farming, or any other work in association with the recovery of land, property and animals

 

  • providing support services or assistance to people in affected areas

 

Finer Details

The bushfire recovery work must have commenced after 31 July 2019 to be considered as ‘specified work’ towards eligibility for a second or third 462 visa.

Furthermore, from 17 February 2020, Working Holiday makers assisting in bushfire recovery efforts can now undertake paid or unpaid work for up to 12 months (instead of 6 months) with the same employer without permission from the Federal Government.
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COVID-19: Critical Matters for Commercial & Retail Tenants and Landlords

New Laws

The NSW Government now has the power to set new rules for retail landlords and tenants, the details of which will be known in coming days.

Although the new laws (currently) only relate to retail leases, nevertheless there are substantial challenges for both commercial and retail tenants and landlords to consider as set out below arising from the COVID-19 situation.

 

What is expected?

For retail tenants and landlords it is expected that the new laws will address such matters as evictions, bank guarantees/bonds, tenant defaults, rent abatements, and mandatory/core trading hours.

Caution must therefore be exercised when purporting to rely upon a lease term as it may be modified or prohibited under the new regime.

 

What about force majeure and rent abatement clauses?

Contractual force majeure provisions (ie, events beyond the reasonable control of a party) and rent abatement clauses will have important significance and need to be carefully considered in terms of the rights, remedies and obligations they create for both landlords and tenants.
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