In the last week the Commonwealth Government has announced financial and regulatory measures in response to the economic risk of the COVID-19 (coronavirus) health crisis. Regulators have also announced their policies relevant to the financial services sector. This article summarises issues affecting financial services providers.
The Commonwealth Parliament is scheduled to address urgent legislative measures on Monday 23 March 2020.
It is not clear whether there will be any normal sitting days after Monday until the 6 October budget (postponed from 12 May).
It is likely that the Financial Services Royal Commission responses will be postponed to allow financial services providers and regulators to focus on continuation of services.
To deliver regulatory certainty at a time when Parliamentary sittings will also be disrupted, the Treasurer will be given a temporary instrument-making power in the Corporations Act 2001 to temporarily amend provisions of the Act to provide relief from specific obligations or to modify obligations to enable compliance with legal requirements during the crisis. The instrument-making power will apply for six months. Any instrument made under this power will apply for up to six months from the date it is made.
Guidelines for meeting upcoming AGM and financial reporting requirements
ASIC has announced that for listed and unlisted public companies with 31 December balance dates that are required to hold an AGM by 31 May 2020 will take no action if the AGMs are postponed for two months until the end of July.
ASIC says it supports the holding of AGMs using appropriate technology (if the company Constitution allows it).
ASIC cautions entities against holding an AGM while there are restrictions on large gatherings, unless the entity can provide members as a whole with a reasonable opportunity to participate in the meeting.
For entities with 31 March or 30 June balance dates, ASIC will carefully monitor how market conditions and COVID-19 are affecting financial reporting and AGM obligations for these entities and may update its guidance if needed.
Temporary insolvency relief for financially distressed companies and individual businesses
To lessen the threat of actions that could unnecessarily push otherwise profitable and viable businesses temporarily facing financial distress into insolvency and winding up of the business, the Treasurer has announced that the Government will legislate the following temporary relief:
- The Government is temporarily increasing the current minimum threshold for creditors issuing a statutory demand on a company under the Corporations Act 2001 from $2,000 to $20,000. This will apply for six months.
- Not responding to a demand within the specified time creates a presumption that the company is insolvent. The statutory timeframe for a company to respond to a statutory demand will be extended temporarily from 21 days to six months. This will apply for six months.
- To assist individuals, the Government will make a number of changes to the personal insolvency system regulated by the Bankruptcy Act 1966. The threshold for the minimum amount of debt required for a
creditor to initiate bankruptcy proceedings against a debtor will temporarily increase from its current level of $5,000 to $20,000. This will apply for six months.
- Failure to respond to a bankruptcy notice is the most common act of bankruptcy. The time a debtor has to respond to a bankruptcy notice will be temporarily increased from 21 days to six months. The extension will give a debtor more time to consider repayment arrangements before they could be forced into bankruptcy. This will apply for six months.
- When a debtor declares an intention to enter voluntary bankruptcy by making a declaration of intention to present a debtor’s petition there is a period of protection when unsecured creditors cannot take further action to recover debts. This period will be temporarily extended from 21 days to six months. This will give debtors more time to consider the options that are best for them. This will apply for six months.
Creditors will still have the right to enforce debt against companies or individuals through the courts.
The ATO will tailor solutions for owners or directors of business that are currently struggling due to the Coronavirus, including temporary reduction of payments or deferrals, or withholding enforcement actions including Director Penalty Notices and wind-ups.
Temporary relief for directors from any personal liability for trading while insolvent
The Treasurer also announced temporary relief for directors from any personal liability for trading while insolvent, and providing temporary flexibility in the Corporations Act 2001 to provide temporary and targeted relief from provisions of the Act to deal with unforeseen events that arise as a result of the Coronavirus health crisis.
To make sure that companies have confidence to continue to trade through the Coronavirus health crisis with the aim of returning to viability when the crisis has passed, directors will be temporarily relieved of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business. This will relieve the director of personal liability that would otherwise be associated with the insolvent trading. It will apply for six months.
Egregious cases of dishonesty and fraud will still be subject to criminal penalties. Any debts incurred by the company will still be payable by the company.
Responsible lending and credit for small business
The Government is providing a temporary exemption from responsible lending obligations for lenders providing credit to existing small business customers.
This exemption is for six months, and applies to any credit for business purposes, including new credit, credit limit increases and credit variations and restructures.
Responsible lending obligations do not currently apply to lending which is predominantly for a business purpose, but it can take time and effort for lenders to be satisfied that the money borrowed meets this test. By providing a temporary exemption from responsible lending obligations, the Government says this reform will help small businesses get access to credit quickly and efficiently.
Securitisation by non-ADI and smaller ADI lenders
The Government is providing the Australian Office of Financial Management (AOFM) with $15 billion to invest in structured finance markets used by smaller lenders, including non-Authorised Deposit-Taking Institutions (Non-ADI) and smaller Authorised Deposit-Taking Institutions (ADI). This support will be provided by making direct investments in primary market securitisations by these lenders and in warehouse facilities.
AOFM’s investment will not be limited to residential mortgage backed securities. AOFM will also be purchasing assets that support small business (unsecured and secured loans) and consumer lending (including credit cards, automobiles and personal loans).
This program is separate from the RBA’s term funding facility, to maintain access to funding and support competition in the lending market.
APRA bank capital ratios
The Australian Prudential Regulation Authority (APRA) has announced temporary changes to its expectations regarding bank capital ratios to ensure banks are well positioned to continue to provide credit to the economy in the current challenging environment. The changes will support banks’ lending to customers, particularly if they wish to take advantage of the new term funding facility being offered by the RBA.
The Office of the Australian Information Commissioner has issued guidance to employers about their privacy obligation to staff while to managing the pandemic and answered FAQs.
It says that while respecting privacy, agencies and private sector employers should aim to limit the collection, use and disclosure of personal information to what is necessary to prevent and manage COVID-19, and take reasonable steps to keep personal information secure.
Regulated entities should also consider whether any changes to working arrangements will impact on the handling of personal information, assess any potential privacy risks and put in place appropriate mitigation strategies as part of Business Continuity Planning.
The OAIC makes the following key points
- Personal information should be used or disclosed on a ‘need-to-know’ basis;
- Only the minimum amount of personal information reasonably necessary to prevent or manage COVID-19 should be collected, used or disclosed;
- Consider taking steps now to notify staff of how their personal information will be handled in responding to any potential or confirmed case of COVID-19 in the workplace;
- Ensure reasonable steps are in place to keep personal information secure, including where employees are working remotely.
AUSTRAC says it will constructively work with reporting entities as they manage their money laundering and terrorism financing risks during this disruptive period. This includes considering their circumstances when applying the Anti-Money Laundering and Counter-Terrorism Financing laws.
ARNECC on verification of identity as a result of COVID-19
ARNECC has published a position statement regarding mortgage verification of identity as a result of COVID-19:
“While the Verification of Identity Standard requires a face-to-face in person interview, compliance with the Standard is not mandatory …. A Subscriber can verify the identity of their client or customer in a way that constitutes reasonable steps. It is a matter for the Subscriber to determine what constitutes reasonable steps specific to the circumstances.
For example, in the current COVID-19 environment Subscribers might like to consider using video technology as part of the verification of identity process. As usual, evidence supporting the reasonable steps taken to verify the client’s identity must be retained…”.
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Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.