Commercial and Corporate update: Some legal considerations flowing from COVID-19

Mar 26, 2020

As COVID-19 continues to spread across Australia at an unpredictable rate, businesses and individuals are being significantly impacted and are now facing a range of challenges. In an attempt to contain the spread, the Federal Government has implemented a range of economic and social restrictions which Australians must follow. These restrictions have put a serious strain on businesses operating across the nation.

Our Commercial and Corporate update highlights some legal considerations that businesses and individuals should now consider.

Contractual obligations

Some of the measures implemented by the Federal Government in an attempt at reducing the spread of COVID-19, are impacting many businesses and affecting their ability to meet their contractual obligations.

It is essential that businesses review all of their current contracts to see if they contain a force majeure clause. Force majeure clauses are commonly incorporated into commercial contracts to provide some form of relief in the event of certain circumstances occurring which prevents a party from fulfilling their obligations under a contact.

The term 'force majeure' is usually defined to include acts of God (such as earthquakes, flooding or tornadoes) and certain acts of man of a disruptive and unforeseeable nature, such as strikes. While it is possible that the force majeure clauses in your contracts do not explicitly use terms applicable to the COVID-19 crisis (i.e. mention the word 'pandemic' or 'epidemic'), this does not necessarily mean you cannot rely on that clause to this effect.

If you are intending to rely on a force majeure clause to terminate a contract, you need to be aware of the notice requirements and consequences of terminating. It is important to note that if the contract is wrongfully terminated, otherwise known as repudiation, this will result in the other party being able to claim damages. Further the mere inclusion of a force majeure clause may not necessarily entitle you to terminate the contract. Some force majeure clauses may only permit the obligations of a party to be suspended for the duration of the force majeure event.

Australian law does not provide for a force majeure clause to be implied in a contract, rather, it must be expressly stated. If your contracts do not contain a force majeure clause then you may be able to rely on the doctrine of frustration. However, this doctrine has a very narrow scope but nonetheless one which may be applicable to your situation.

Care must be taken to make sure that your rights (termination, suspension or otherwise) under a force majeure provision are correctly exercised. Failure to do so may result in you losing the protection from these provisions that you otherwise would have had.

Data and privacy

Individual information, including health information is generally governed and protected under privacy laws. Government agencies and organisations are permitted to use and disclose an individual’s personal information for a particular purpose by first obtaining the individuals consent. Current legislation permits government agencies and organisations to use and disclose personal information without first obtaining an individual’s consent if the purpose of disclosing the information is to prevent a serious threat to the health or safety of the public.

Both the Prime Minister and Attorney General have the power, in specific circumstances to make an emergency declaration to permit the collection, use or disclosure of personal information. As the spread of COVID-19 rapidly continues across the nation, disclosure of an individual’s information for this purpose may be permitted and government agencies and organisations need to carefully consider whether it is appropriate to collect, use and disclose such information about an individual in relation to the recent outbreak.

Loans and guarantees

Many businesses are suffering financial hardship, or will suffer financial hardship, as a result of the COVID-19 outbreak. In these uncertain times, Australian banks are deferring repayments for up to six months on loans taken out by small businesses who have been affected by COVID-19.

Further, the Government has announced that it will guarantee 50% of new unsecured loans for businesses that turnover under $50 million and will also provide eligible lenders with a guarantee for loans.

More information is available via the Australian Government's fact sheet: Supporting the flow of credit.

Insurance

Losses incurred as a result of a pandemic are generally not protected in standard insurance policies. It is important that businesses review the terms and conditions of their current insurance policies so they are aware of what is included. It is equally important that individuals review their current life insurance and income protection policies, to determine if they would be covered if affected by the virus.

Debtor relief

The Commonwealth Government has introduced temporary measures to support businesses through the current COVID-19 pandemic. Companies that have been served with a statutory demand will now have up to six months to respond rather than the initial 21 day time frame. Further, the threshold for creditors to issue a statutory demand has increased from $2,000 to $20,000. The implementation of these measures is designed to allow a company with more time to trade out of their financial circumstances and/or come to a negotiated agreement with their creditors without the Sword of Damocles of a Statutory Demand hanging over them.

Corporate governance

The strict measures put in place to combat the spread of COVID-19, including banning non-essential gatherings, means companies cannot hold their annual general meeting (AGM) for the time being. The Treasurer may modify or remove certain requirements for companies to adhere to temporarily, due to the current pandemic. Additionally, ASIC has provided guidance and alternative means for companies to hold their AGM’s including but not limited to postponing or conducting their AGM virtually.

The COVID-19 outbreak has had a significant economic impact across the nation and the world. Businesses need to carefully review and assess their existing contractual arrangements and obligations and be made aware of their contractual rights.

More information

If you require advice in relation to any of the above issues, or assistance any other commercial and corporate related matters, please contact Jeremy Goldman, Principal Lawyer and Head of Commercial and Corporate, on (03) 8600 8886, Darren Brown, Principal Lawyer, on (03) 8600 8867, or Roger Rothfield, Special Counsel, on (03) 8600 8844.

As a full service commercial law firm, we are able to advise you on other related areas of the law which are likely to be impacted by this pandemic, namely property (especially landlord and tenant relations) and workplace relations (especially stand down and working remotely issues).

Author

This Commercial and Corporate update was authored by Dania Ammouche, Lawyer

Note: This update is a guide only and is not intended to constitute legal advice.

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