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With many listed companies withdrawing their forecast guidance, the AICD has proposed that the continuous disclosure obligations in the Corporations Act be amended to provide a temporary safe harbour to protect companies from class actions relating to earnings guidance or forward-looking statements about company performance. https://aicd.companydirectors.com.au/-/media/cd2/resources/director-resources/covid19/pdfs/aicd-proposal-for-temporary-continuous-disclosure-safe-harbour.ashx?utm_source=AdobeCampaign&utm_medium=email&utm_campaign=BRAND&utm_content=DM3049400&TC=DM3049400

Under the Corporations Act, public companies (both listed and unlisted) must hold an AGM at least once a calendar year and within five months of their financial year end. This means companies with a 31 December balance date must hold an AGM by no later than 31 May this year.

However, in light of the travel and social distancing restrictions arising from COVID 19, ASIC has announced that it will take no action against companies which seek to delay their AGM’s until 31 July 2020 (ie for 2 months) or such later date as ASIC advises or which seek to hold hybrid or virtual AGMs within the same period.

A ‘hybrid’ AGM is one where there is a a physical location and online facilities, whereas a ‘virtual’ AGM is one that is conducted solely online

ASIC’s ‘no-action’ position on virtual AGMs is conditional on the technology providing members as a whole, a reasonable opportunity to participate. In ASIC’s view, this would include:

• members being able to ask questions of the auditor and Management
• voting occurring by a poll rather than a show of hands.

ASIC’s no-action position does not restrict the ability for shareholders to challenge the validity of a meeting or the passing of resolutions, so it is important that companies consider their constitution to determine the most effective way to hold a meeting in the current circumstances.

The Federal Government has recognised that, in the current virus crisis, directors are likely to need to make urgent decisions about incurring debt. Accordingly, a 6 month safe harbour has been introduced to relieve directors from personal liability for trading whilst insolvent (in breach of s588G of the Corporations Act) provided that he or she can demonstrate that:

• the debt is incurred in the ‘ordinary course of the company’s business’;
• the debt is incurred during the six months following the commencement of the new law (or such longer period as prescribed by the regulations); and
• the debt is incurred before any appointment of an administrator or liquidator of the company during the temporary safe harbour application period.

A director will be taken to incur a debt in the ‘ordinary course of the company’s business’ if it is necessary to facilitate the continuation of the business during the six-month moratorium. However, it is unclear whether a company incurring debt as part of recapitalising during the applicable six-month period would qualify for relief.

Accordingly, directors should take care to ensure that the debt incurred is necessary for the business to survive the current crisis.