• Employees who were actively engaged in a business for an average of 20 hours per week or more in February 2020 will be moved to a payment rate of:

  • $1,200 per fortnight from 28 September 2020 until 3 January 2021; and 

  • $1,000 per fortnight from 4 January 2021 until the conclusion of the program on 28 March 2021.

• Employees who were engaged for less than 20 hours per week in the month of February 2020 will be moved to a payment rate of:

  • $750 per fortnight from 28 September 2020 until 3 January 2021; and

  • $650 per fortnight from 4 January 2021 until the conclusion of the program on 28 March 2021.

• Eligibility in regards to the turnover test will be reassessed by reference to the June and September quarters of 2020 using the actual GST turnover (rather than projected GST turnover);

•  From 4 January 2021 to 28 March 2021, the turnover test will be assessed using the actual GST turnover from the June, September and December quarters of 2020;

• The required decline in turnover to satisfy the turnover test remains at 50% for large businesses (aggregated turnover of $1 billion or more), 30% for other businesses (aggregated turnover of $1 billion or less) and 15% for not-for-profits and charities other than schools and universities.

The Commissioner for Taxation will have the discretion to set alternative tests where an employee’s or business participant’s hours were not usual during February 2020 (on leave, volunteering, or only recently hired). 

Conclusion

We hope this overview has provided some useful guidance during these difficult times. However, please remember that businesses should always seek independent and specific legal and accounting advice and that we are here to support you.
Gavin Parsons and Associates can assist you with any questions you may have regarding your business or that of your clients. Contact Gavin Parsons and Associates on (02) 9262 4471 for a free no-obligation consultation today.

In Glenfyne International Holding Limited v Glenfyne Farms International AU Pty Ltd (in liq) [2019] NSWCA 304, the NSW Court of Appeal exercised its discretion to order that a proposed creditors’ resolution to appoint liquidators (which was rejected following the exercise of the chairperson’s casting vote), be taken to have been passed.

Outline

1. At a second meeting of creditors, it was resolved that a liquidator be appointed to the company Glenfyne Farms International AU Pty Ltd;

2. At that point in time, the administrator ceased his role as administrator, but continued to act as the meeting’s chairperson;

3. Creditors with a majority in value proposed a resolution to the effect that alternative liquidators be appointed, rather than the former administrator being appointed as the liquidator;

   1. Creditors with a majority in number voted against the resolution;

   2. There was a deadlock (majority in value v majority in number);

4. Because the chairperson was not an ?external administrator’ immediately following the resolution in 1 above (the administration had ended ? s 439C(c) of the Corporations Act 2001 (Cth) (?CA?)), the former administrator was not prevented by s75-115(3)(b) of the Insolvency Practice Rules (Corporations) 2016(Cth) from exercising a casting vote on the resolution in 3 above;

   1. The chairperson exercised his casting vote against the proposed resolution (the practical result being that he became the liquidator, by default ? s499(2A)(b) of the CA);

   2. As the chairperson was entitled to exercise his casting vote (viz not an appointed external administrator exercising a casting vote against a resolution relating to their removal), the aggrieved creditors (majority in value) were entitled to apply to the Court to have the exercise of the casting vote reviewed under s75-43(4)(a) of the Insolvency Practice Schedule of the CA (?IPS?);

   3. However, the Court of Appeal held that the chairperson’s exercise of the casting vote in the particular circumstances of the case, was improper and ordered that the resolution proposed by the aggrieved creditors (referred to in 3 above) should be taken to have been passed;

5. This article deals with what factors chairpersons should take into account, should such a (not unusual) event occur.

The Authorities

The Court of Appeal set out the applicable authorities at [65]-[67]:

65. The principles governing a review of the casting vote of a presiding member have been considered in a large number of cases. Some of these were collected by Gordon J in Brisconnections Management Company Limited, In the matter of Thames Blund Holdings Pty Ltd (In Liquidation) [2009] FCA 626; (2009) 72 ACSR 233 at [11] in relation to predecessor provisions of s 75-43(4). In that decision, at [6], her Honour usefully reproduced s 21.7.4 of the IPA Code of Professional Practice for Insolvency Practitioners which sets out a number of relevant matters for consideration when exercising a casting vote. At [12] of her decision, Gordon J observed that:

?The exercise of the casting vote is most appropriate in circumstances where a creditor with a majority in value (such as the [A]pplicant) has such an overwhelming interest that it is inappropriate to allow a majority in number who do not have the same monetary interest to carry the day. As the case law and the Code makes abundantly clear, there is no presumption in favour of the majority in value. However, where there is large disproportion between the values of the debts of the numerical minority and the numerical majority (as is the position here) it must be a factor to be taken into account.?

66. In an earlier decision, Cresvale Far East Ltd (In Liq) v Cresvale Securities Ltd [2001] NSWSC 89; (2001) 37 ACSR 394 at [111]-[113], Austin J made the following observations in relation to the review by a Court of the exercise of a insolvency practitioner’s casting vote. His Honour said:

?In my opinion, the Court’s power under s 600B, to set aside or vary a resolution passed because of the exercise of the casting vote, permits it to review the administrator’s reasons for the exercise of the casting vote. The Court need not confine itself to the question whether the administrator has acted honestly as chairman, because it is given a specific statutory power to hear an application to set aside or vary the resolution. As Santow J said in Re Martco Engineering, the Court does not automatically accept the (honest) exercise of the casting vote as an appropriate one. The Court’s attitude will ?depend on factors such as whether the administrator has properly exercised the casting vote in the interests of creditors as a whole, such as in circumstances where the vote or votes which prevent one of the two conditions being fulfilled [approved by numerical majority and by value of debts] would represent an outcome unfair to the remaining creditors if not reversed by a casting vote’ (at 489).

Re Coaleen Pty Ltd (1999) 30 ACSR 200 shows that it is relevant to take into account, as factors, matters such as:

• opposition to the proposal by the major creditor, especially when there is a large disproportion between the major debt and other debts;

• support of the proposal by the directors where the proposal will deliver some advantage to them;

• misleading information in the administrator’s report; and

• whether creditors who voted in favour of the deed will be prejudiced if the Court sets aside the resolution.

Additionally, the Court may be influenced by whether the administrator has made adequate investigations before deciding on the use of the casting vote. Failure by the administrator to carry out sufficient investigations into taxation and other matters, before exercising the casting vote, led Derrington J to set aside a deed of company arrangement under s 447A, in Re Bartlett Research Securities Pty Ltd (1994) 12 ACSR 707. His Honour did not refer to s 600B, but his decision was applied by Moynihan J, in the context of s 600B, in Re Coaleen Pty Ltd.?

67. It was also submitted and, in my opinion, correctly so, that:

1. when ascertaining the interests of creditors, it is their interests as creditors that are to be primarily considered, with the views of those who are voting for foreign purposes unrelated to their desire to maximise recovery of their debts to be given reduced regard: Deputy Commissioner of Taxation v Alternative Business Solutions (Aust) Pty Ltd [2006] FCA 400 at [9];

2. when it comes to deciding who should be the liquidator of a company, the views of those with a vested interest in minimising investigations, such as those involved in or benefiting from transactions likely to be impugned, should be discounted: Haulotte Australia Pty Ltd v All Area Rentals Pty Ltd [2012] FCA 615; (2012) 90 ACSR 177 at [39]; and

3. a director should not to be permitted, through control of a bloc of related creditors, to override the wishes of other creditors in order to minimise scrutiny of their conduct: In the matter of Sales Express Pty Ltd (Administrators Appointed) [2014] NSWSC 460 at [27]-[28].

Summary

The Court of Appeal held at [68]-[73]:

1. There were certain creditors in the majority in number group whom had pre-existing relationships with the director, whom, despite being offered full value for their claims, refused to assign their debts to the majority in value group. The Court of Appeal considered that those creditors were not voting in their best interests as creditors;

2. As there were certain investigations to be made, it was preferable that those investigations be carried out by liquidators without any pre-existing relationship with such creditors.

Takeaway Points

When a chairperson is exercising a casting vote:

1. Whilst there is no presumption in favour of majority in value, when there is a large disproportion in value between numerical majority and numerical minority, that must be a factor to take into account;

2. The relevant interest of creditors, is that of the creditors as a whole (maximisation of financial return, and not any other reason);

3. Creditors whom are voting with vested interests (i.e. minimising the liquidator’s investigations), should be discounted.Please contact us If you wish to ensure your meeting procedures and legal compliance are correct, GPA Law can assist you with any question you may have. Contact us on (02) 9262 4471 or at gavin@gpalaw.com.au for a free no obligation consultation.

• ?As the new laws merely require an appropriately qualified adviser to advise on the rescue plan, which is too broad, a pre-insolvency adviser could provide the advice and as such many liquidators would be holding back from doing this work to allow the pre-insolvency types to test it and most likely do it unsuccessfully.?

• ?When a director approaches an insolvency firm regarding his/her company the firm is much more likely either to put it in liquidation or, alternatively, administration/DOCA if the company can be saved. As such, it’s easier for the firm to do this/what they have been doing day in day out for years rather than attempt to safe harbour the director which would conflict them out of the liq/admin/DOCA.?

• ?It’s too hard and I’m not going to try and learn all the different aspects of these new laws. It’s not something we offer or even consider.?

• ?As directors are only in safe harbour/protected from insolvent trading claims and not others such as directors duty breaches and other claims there probably would not be much interest if we did offer the service.?

• ?The tax compliance requirements to qualify for safe harbour are too onerous and unrealistic as only a very small percentage of companies facing insolvency don’t owe any tax?.

From the Answers, it is clear that the Safe Harbour provisions are rarely being implemented or used. 
The Answers and the Feedback were recently discussed by Mr McDonald at the Association of Independent Insolvency Practitioners (AIIP) Conference in Sydney on 19 May 2020.

Recent Reforms due to COVID-19
As part of the Government’s recent legislative response to COVID-19, further Safe Harbour provisions were introduced to the Corporations Act, at s588GAAA. These provisions, rather than amending existing Safe Harbour protections, create an entirely new mechanism to protect a Director from a breach of their duty to prevent insolvent trading.
Operating for only a six (6) month period from its introduction, though capable of extension if the circumstances of COVID-19 vary, these Safe Harbour provisions are significantly simpler in operation than the original Safe Harbour protection. This is evident from the checklist below.
Checklist for the Recent Reforms
1. Has the company incurred a debt which would otherwise be a violation of s588G?;2. If so, was the debt incurred in the ?ordinary course of business??;3. If so, was the debt incurred between 25 March 2020 and 25 September 2020, or a further time provided for by Regulations?;4. If so, was the debt incurred prior to the appointment of an administrator or liquidator to the company?; and5. Do you have enough evidence to suggest a reasonable probability of the above existing?
If so, you may be protected by the new Safe Harbour provisions.
Safe Harbour as a Tool
Speaking practically, the further Safe Harbour provisions introduced due to COVID-19 are significantly wider in application than the initial protections.
But one of the big questions is: what is in the ?ordinary course of business??
The Explanatory Memorandum to the amendments explains that, amongst other things, a Director is acting in the ordinary course of business if it is necessary to facilitate the continuation of the business. This can include things such as taking out loans to move business operations online, or incurring debts by continuing to pay employees. This indicates that even exceptional measures may qualify for the protection should they be necessary for the business’ continued survival.While this may operate effectively as a tool for now, it is important to recognise that unlike normal Safe Harbour protections, the new laws have a definite end-point, and there’s no test indicating that by taking the action the Director is salvaging the position of their company.
As such, once the protection lapses, Directors may immediately become liable for trading while insolvent, and their company may be in a significantly worse position than it would have been had it have wound up rather than rely on the protection. This may also negatively impact other companies who have been trading with these insolvent entities, especially if a large number of companies become insolvent at once.
Conclusion
The original Safe Harbour protections remain limited in scope, hampered by requirements, and offering little benefit to all but the largest of companies who are fully able to take advantage of its protections. As such, there’s been little use, or even consideration, of its provisions.
In comparison, the Safe Harbour measures put in place with COVID-19 are significantly wider in reach, and less onerous to utilise, operating to keep businesses running which would otherwise be wound up due to insolvency. The long-term economic impact of these businesses potentially operating while insolvent with no plan to become solvent in the ?ordinary course of business? is yet to be seen, but the provisions remain a potentially useful tool to keep companies afloat on stormy seas.
If you or your staff have any questions or need advice regarding any aspects of the Survey Results, the Safe Harbour legislation, or the COVID-19 Safe Harbour provisions please contact Gavin Parsons by telephone on (02) 9262 4471 or via email at Gavin@gpalaw.com.au.

• Corporate Groups: it is common that among a group of companies only a single company engages any employees and has labour hire agreements with other members of the group. This structure would have the effect of the employer company suffering no downturn in revenue while the commercial reality for the group is that revenues have been severely impacted by the crisis. Subject to certain conditions the employment company may now be able to consider the turnover of the group rather than only the employer company pursuant to the ?Modified Test’ for decline in turnover in the Rules;

• Recently commenced businesses which do not have a long enough trading history for an appropriate comparison period to exist;

• Businesses which have had a major disposal or acquisition in the last year;

• Businesses who have conducted a restructure in the past year;

• Businesses which have recently been impacted by natural disaster or drought;

• Businesses with irregular turnover; and

• Businesses run by a sole trader who has been impacted by sickness, injury or leave.

If you were not eligible under the original turnover test, one of the alternative tests might apply to you, you should consider the guidance provided by the ATO or consult with your accountant. Alternatively, do not hesitate to contact Gavin Parsons and Associates direct by email gavin@gpalaw.com.au or phone on 02 9262 4471 if you require any assistance in assessing your eligibility.
Conclusion
We hope this overview has provided some useful guidance during these difficult times. However, please remember that businesses should always seek independent and specific legal and accounting advice.
In addition to the above, Gavin Parsons and Associates can assist you with any questions you may have regarding your business or that of your clients. Contact Gavin Parsons and Associates on (02) 9262 4471 for a free no-obligation consultation today.