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COVID-19 and Corporate Insolvency: What should directors do?

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

During the COVID-19 outbreak, insolvent trading laws have been relaxed. But this does not mean there is no risk to directors. In reality the breathing space has simply been extended to allow directors to work out a solution. In our previous blog in this series, we discussed the obligations on directors when their companies are or might become insolvent. This blog explores what directors should do about it.

Voluntary Administration

Company directors who fear that a company is or may become insolvent and who might not be protected by the amendments should give consideration to appointing a voluntary administrator (“VA”). Appointing a VA puts in place a moratorium on enforcement action by creditors while the VA investigates the affairs of the company and reports to creditors, including even certain enforcement action by lenders and landlords. Further, director exposure to liability for insolvent trading ceases from that day forward, while the possibility of the company continuing to exist is kept alive.
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Helpful Resource on Directors’ Duties During Disaster

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Directors’ duties are changing daily as the Government makes new laws to deal with the impact of COVID-19. However those duties have not been extinguished and it is important that responsible directors keep on top of their statutory obligations (and personal liabilities). The Australian Restructuring Insolvency and Turnaround Association (“ARITA”) has released helpful guidance for directors. These resources can be accessed via the below link:

  • Guidance with respect to directors’ duties – ARITA News

Matthews Folbigg Lawyers has a legal team dedicated to Insolvency, Restructuring and Debt Recovery. All of the solicitors on this team are members of ARITA, and have been following the changes in this practice area closely.

Our team are ready to advise directors  on this complex area. If you have any questions about these changes, or would like to discuss these resources, please contact a Principal of Matthews Folbigg Insolvency, Restructuring & Debt Recovery Team:
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Employment Law – Ex-Director Restrained by IP

Employment Law – Background

Climate Change Technology P/L (‘CCT’) has sought an interlocutory injunction to restrain a former director and inventor of a thermal energy battery.  The employment law decision raises the importance of documenting relationships.

Employment Law – Facts

In essence:

  • first of all, Dr Patrick Glynn was employed by CCT between 2011 and 2016. He was its principal research officer and director. In addition, Dr Glynn was appointed its chief executive towards the end of his tenure at CCT
  • he invented a thermal energy storage device and assigned a patent to it in 2011. Furthermore, he signed an intellectual property agreement
  • CCT submitted that they spent about $5 million over the last six years on researching and developing the device and associated technology
  • when Dr Glynn quit in 2016, he allegedly retained intellectual property and confidential information in relation to the device. Furthermore, he set up another research and development company and an umbrella company
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Employment – Personal Liability for Directors and Managers

Cause for Vigilance!

A string of recent employment cases involving the Fair Work Ombudsman have clearly illustrated the risk posed by the ‘accessorial liability’ provisions within the Fair Work Act.

In essence:

  • accessorial liability is a legal doctrine used to extend legal responsibility for an unlawful act to those involved in or associated with the act
  • in employment claims, accessorial liability can also render a director and/or manager liable for an employer’s contravention of the Fair Work Act

Accessorial Liability under the Fair Work Act

Under the Fair Work Act a person who is ‘involved’ in a contravention of the Fair Work Act is taken to have contravened that provision, where the person:

  • has aided, abetted, counselled or procured the contravention; or
  • has induced the contravention, whether by threats or promises or otherwise; or
  • has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or