Current as 5:00pm on 3 April 2020, based on publicly available information.
This document will be updated regularly to reflect the changing landscape and directions issued in each State and Territory.
Over the weekend the Commonwealth Government updated its economic response to the COVID-19 pandemic, announcing what is now a $189 billion consolidated package of fiscal and balance sheet support to assist businesses and individuals.
Our team has briefly summarised a number of the new measures that have been announced to support business.
Key measures that have been announced are:
Temporary relief for financially distressed businesses to apply for 6 months
- Relief for directors of companies from any personal liability for the company trading while insolvent, in respect of debts incurred in the ordinary course of business. Debts incurred remain payable by the company. We expect that directors will still be expected to comply with, and be potentially liable for breach of, their general duties as directors in relation to decisions that they make in response to the COVID-19 pandemic;
- Flexibility in the Corporations Act (in the form of a new Treasurer’s instrument making power) to provide targeted relief for companies from provisions of the Act to deal with unforeseen events that arise as a result of the Coronavirus crisis. There are no further specifics as yet, but the Treasurer has noted that one area of focus will be to address certain issues that might arise under the Corporations Act for companies seeking to hold virtual general meetings or physical general meetings with electronic participation by members;
- Increase in the threshold (from $2,000 to $20,000) at which creditors can issue a statutory demand on a company and an extension of the timeframe (from 21 days to 6 months) companies have to respond to statutory demands they receive, which will provide companies in financial difficulty with some additional breathing space to address the issues giving rise to the demands;
- Increase in the threshold (from $5,000 to $20,000) for a creditor to initiate bankruptcy proceedings, an increase in the time period (from 21 days to 6 months) for debtors to respond to a bankruptcy notice, and extending the period (from 21 days to 6 months) of protection a debtor receives after making a declaration of intention to present a debtor’s petition.
Supporting the flow of credit
Coronavirus SME Guarantee Scheme
- Who’s eligible: SMEs with a turnover up to $50m.
- What is it: Government will provide a guarantee of 50% to SME lenders for new unsecured loans to be used for working capital. Maximum total size of loans of $250,000 per borrower. Term of up to 3 years, with initial 6 month repayment holiday. Lenders encouraged to provide facilities to SMEs that only have to be drawn if needed (so no interest payable if no draw down).
- Timing: Scheme to commence early April 2020.
Quicker access to credit for small business – responsible lending exemption
- What is it: Exemption from responsible lending obligations for lenders providing credit to small business customers.
- Timing: Exemption to apply for 6 months, and to apply for any credit for business purposes.
- What is it: A new $90b term funding facility available to the banking system. Fixed interest of 0.25%. The facility offers additional low-cost funding to banks if they expand their business lending, with particular incentives applying to new loans and SMEs.
- Reduction in cash rate to 0.25%.
- Timing: To be implemented as soon as possible.
Assistance for non-ADI and small ADI lenders
- What is it: Government will provide the Australian Office of Financial Management with $15b to invest in structured finance markets used by these smaller lenders ie direct investment in primary market securitisations by the lenders and in warehouse facilities.
- Timing: To be confirmed.
Reduction in ADI capital ratios
- What is it: Temporary reduction in APRA's ADI capital ratio requirements, to seek to ensure banks are well positioned to continue to provide credit.
- Timing: APRA announced the reduction on 19 March 2020.
Cash flow assistance for businesses
Boosting Cash Flow for Employers:
- Who’s eligible: Small and medium sized business entities and NFPs with annual turnover under $50m that have employees.
- Payment amounts and timing: Employers will receive a payment equal to 100% of their salary and wages withheld, up to a cap of $50,000. An additional equal payment will be made in July-October 2020.
Supporting Apprentices and Trainees:
- Who’s eligible: Small business employing fewer than 20 FTEs who retain an apprentice or trainee, and employers of any size that re-engage an eligible out of work apprentice or trainee.
- What is it: Employers will be reimbursed up to a maximum of $21,000 per eligible apprentice or trainee.
Support for business investment
- Instant Asset Write-Off threshold increased from $30,000 to $150,000, so eligible businesses can immediately deduct purchases of eligible assets each costing less than $150,000. ‘Eligible businesses’ category expanded to include all businesses with aggregate turnover of less than $500m (up from $50m) until 30 June 2020.
- Incentive to encourage business investment. Deduction of 50% of cost of eligible asset on installation. Available to businesses with turnover below $500m and in relation to depreciable assets acquired post-announcement and first used or installed by 30 June 2021.
Severely affected regions and sectors – e.g. aviation
Government has also set aside $1b to support regions, communities and industries that are hardest hit. There will be initiatives established asap. Separately, there will be initial support to the airline industry through an estimated $715m package of relief from taxes and charges.
The Government’s response also includes temporary support for households and individuals in the form of increased and accelerated social security and other support payments, temporary measures to make superannuation more accessible to retirees, and temporary support for child care centres and families.
Other developments to be aware of:
- Other COVID-19 fiscal and economic measures have been introduced by the State and Territory governments;
- The Council of Financial Regulators has encouraged banks to work constructively with affected customers during the disruption. APRA and ASIC will ‘take account of the circumstances in which lenders, acting reasonably, are currently operating during the prevailing circumstances when administering their respective laws and regulations’:
- The Federal Government will also provide a further $13 million from the Medical Research Future Fund to fast-track research into treatments for COVID-19. The funding aims to support rapid development of safe and effective treatment options for COVID-19.
Where to from here?
The legislation giving effect to these measures is expected to be considered by the Commonwealth Parliament during the course of Monday, 23 March 2020. We will be continuing to monitor the passage of the legislation and will be able to provide further comment and analysis once the final form of the legislation has been settled.