Vol 17 (2020) - Issue 4

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How Australian Courts are Advancing Corporate and Business Rescue During COVID-19 and the Agenda for Enduring Law Reform

Synopsis
The initial outbreak of COVID-19 saw the announcement of unprecedented government fiscal and stimulus packages across the globe. In Australia, an economic support package of $320 billion, including a $130 billion package1 to guarantee wages and encourage employers to keep staff on their books with a view to scaling up their operations in the second half of 2020, was implemented by the Commonwealth Government in March and April, with states and territories also announcing separate measures such as tax concessions and cash flow support since that time.

These measures have been necessary in an economic and health environment of inherent uncertainty, where the rules have changed daily and projections for an unknown future have become redundant almost the second they have been issued. However, with the focus now turning to economic recovery and an eventual return to growth, it has become readily apparent that the business world will be a very different one to what it was pre COVID-19. Many of the business models that were so successful previously simply cannot continue in the future.

This can most clearly be seen in the hospitality, tourism, retail and personal services sectors, with businesses needing to adapt to changed patterns of consumer demand and behaviour, in terms of the how – with a push to online delivery – and also the desire and means – with declining levels of affluence and discretionary expenditure and a focus on simpler, safer living. More broadly, the unwinding of global supply chains and geopolitical tensions will impact businesses across all sectors, as the push for bigger and better now becomes a desire for smaller, more local and more sustainable. There will be an inevitable contagion effect on landlords, banks and insurers, which in turn will cycle back to hit businesses again in the form of higher cost bases and less availability of credit.

In this environment, there is a real prospect that many of the businesses simply hanging on for the last three months with the benefit of public support measures, along with loan and rental concessions from banks and landlords in the private sector, will not be able to do so once that support reaches its fastapproaching end.

The focus must therefore turn to Australia's insolvency framework and how existing laws, and future law reform, can support the restructure of viable companies and businesses while ensuring that capital in entities with endemic operational issues is recycled and reinvested in the innovative industries and business models that will fuel recovery and growth on a macro level.