2021 – Who will soar and who will stumble?

Nov 26, 2020

The challenges of 2020 have been experienced by us all – as individuals, as businesses and as a community. We did not face the same challenges, but it would be difficult to find anyone who was not impacted by the events of this year.

For businesses, the strain of closure was eased by various government measures. For many, JobKeeper payments allowed businesses to continue in circumstances where this otherwise would not have been the case.

COVID Safe Harbour provisions passed in March 2020 amended the Corporations Act 2001 to protect directors from potential personal liability for insolvent trading for debts incurred in the ordinary course of the company’s business. The measures were initially to apply for a period of 6 months from 25 March 2020, a period that was subsequently extended to 31 December 2020. The sunset on the relief period is rapidly approaching.

JobKeeper was scaled back after the initial period expired in September 2020 and will be reduced again in January 2021.

Now is the time for directors to properly analyse their businesses to ensure they are viable and indeed robust as we look towards 2021.

The most successful businesses in 2020 were those that were able to respond rapidly to changing circumstances, to pivot their business at short notice to meet the changed business landscape. My favourite is a client who is a wedding planner. With the cancellation of all wedding bookings, she instead turned her business to flower delivery – such a clever and timely change has allowed her business to weather the storm.

In terms of the next 12 months, planning will be the key. Every business must have a plan, one that can be quickly adapted to a number of different circumstances. Review your business model and turn your mind to the following:

  • Where are the weaknesses?
  • What about your suppliers and supply chain? Will this be interrupted as a result of the pandemic? What is the forecast for this over the next 6, 12, 18 months?
  • Who are your key customers? Have their businesses suffered? Are they likely to be in a position to continue their business unchanged? How will this affect your business?

In the time before the temporary Safe Harbour provisions expire on 31 December 2020, prepare short, medium and long term forecasts. Where a company’s ongoing solvency cannot be confirmed, directors should seek advice on appointing an administrator or liquidator prior to the expiry of the COVID Safe Harbour provisions.

The Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 is proposed to become law on 1 January 2021. In summary, the proposed laws will allow companies that would otherwise be deemed to be insolvent to restructure and continue trading. Companies seeking to rely on the reform will need to engage with creditors in a meaningful way.

Directors who are concerned with a company’s solvency should seek advice early as to whether they may rely on the reforms.

The challenges faced by businesses in 2020 are likely to continue into the coming 12 months. Is your business ready?