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Navigating these uncharted waters under financial distress

As featured in the October Edition of Bowls Queensland's Queensland Bowler.

In the August 2019 edition of Queensland Bowler, we outlined the importance of assessing your Club’s solvency and, if necessary, how to reduce future risk. Of course, given everything that has transpired in 2020, these considerations are more pertinent than ever.

The structure of your Club will vary the application of the relevant legislative provisions and the corresponding protections. Since our previous update, further legislative reform has occurred in this area, specifically:

  • An amendment to the Associations Incorporation Act, due to commence in June 2021, where specific duties are imposed on committee members. These duties relate to conflicts of interest, care and diligence, acting in good faith and most relevantly, a duty to prevent insolvent trading. While there are defences against these duties, including making informed business judgments in reliance upon reasonable and informed advice, a breach will attract a financial penalty of up to $8,000; and
  • An amendment to the Associations Incorporation Act, currently in effect, to enable the appointment of an administrator to place the association into voluntary administration if they are experiencing financial distress. However, the operation of this amendment incorporates relevant provisions of the Corporations Act which potentially provides scope for liquidators to pursue voidable transaction claims, such as unfair preference claims and unreasonable director related transactions.

Relevant to those clubs structured as companies limited by guarantee, the temporary amendments to the insolvency and corporations laws have been extended to assist organisations with navigating the ongoing challenges COVID-19 presents. In effect, these changes (extended until 31 December 2020) operate to avoid unnecessary insolvencies and bankruptcies by allowing businesses (and their directors) to continue to trade through a temporary period of illiquidity, rather than enter voluntary administration or liquidation as would ordinarily be the case.

These amendments relieve directors of the risk of personal liability for debts incurred while the business is insolvent and lift the minimum threshold at which creditors are able to issue a statutory demand (and in turn, the timeframe for response). These protections operate in addition to the ‘safe harbour’ reforms introduced in 2018, which protect directors from the insolvent trading provisions in circumstances where, upon suspecting that a business is or may become insolvent, a specific course of action is developed in order for the business to recover. The operation and protection of these provisions depends on the structure of your Club. In any event, it is imperative to closely monitor your Club’s financial position, particularly in this season of extraordinary uncertainty.

Please keep in mind that the above protections have only been extended until the end of the calendar year. It is also important to note that the Job Keeper Payment Scheme has been extended to 28 March 2021, and the Associations Incorporation Act amendments will come into effect in June 2021.

The ever-evolving nature of COVID-19 highlights how important it is to keep abreast of the protections and assistance packages that are available to your Club and to continually monitor your Club’s finances – both of which are key to navigating these uncharted waters.

Matters of insolvency and bankruptcy are complex and require careful consideration and advice. If you have any questions about your Club’s solvency and risk, or would like advice on other legal matters as they relate to your Club, please call me on 07 3224 0353.

"The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication."