News and Views
| April 2020
COVID-19 Legal Issues Briefing
COVID -19 Legal Issues
In the past few weeks, the increasing spread of COVID-19 in Australia has brought immediate, unprecedented and far reaching challenges across Australia and the international community. No one it seems has been spared with COVID-19 not only placing lives in serious jeopardy, but also the immediate future of many businesses, with no knowing how long this crisis will last.
This briefing note provides a short summary of some of the pertinent legal issues that individuals and businesses should be aware of during the COVID-19 crisis. Set out below are details of key contacts at Deutsch Miller who can assist you and your business to navigate the coming months. It is best to obtain advice at an early stage so we can assist with not only explaining your legal position and options available to you, but also negotiating constructive and sensible commercial outcomes on your behalf.
Breach of contract
If you cannot comply with your existing contractual obligations (or think you will not be able to in the future), we can help you work through any contractual issues you are facing.
Force Majeure Claims
Contracts may contain what is known as a “force majeure” provision which may allow a party to be excused from fulfilling its contractual obligations due to unforeseen circumstances that are beyond the party’s control. Depending on the wording of the clause, this may extend to the COVID-19 pandemic.
If you are concerned about breaching your contractual obligations, or if a party has been unable to fulfill its contractual obligations to you, please contact us as we would be happy to advise you on your legal rights and obligations and help you to develop a strategy to respond.
Negotiating new contracts
Any business entering into a new contract should consider the inclusion and scope of a force majeure clause. For example, the parties may wish to clarify that neither party can avoid their obligations under the new contract by pointing to the impact of the COVID-19 pandemic as it is no longer an unforeseen event at this point.
Depending on the nature and scope of the agreement, parties may need to consider varying exclusivity rights, minimum orders, termination rights and other provisions relevant to the business and context of the agreement.
Risks in M&A transactions
Businesses currently negotiating M&A transactions should closely consider controls for risk allocation between the buyer and the seller. These controls include conducting thorough due diligence on the target, inserting conditions precedent relevant to the pandemic, providing specific termination rights between execution and completion of the transaction, and negotiating the scope of any warranties and indemnities in the transaction documents.
Changes to foreign investment framework
As announced by the Treasurer on 29 March 2020, the threshold amounts which apply in determining whether foreign investments made after 29 March 2020 are subject to Australia’s foreign investment framework have been reduced to $0.
If you are considering or are currently involved in any investment or acquisition involving a foreign entity or person or an entity whose owners are or are controlled by foreign entities or persons, you should consider obtaining legal advice at the earliest opportunity.
Completion of transactions that are currently conditional
There are several key issues which may become relevant if a party has entered into a conditional sale agreement. Parties should consider whether the agreement includes provisions relating to a material adverse change (“MAC”). Depending on how a MAC provision has been drafted, a party may be able to terminate the agreement due to the impacts of COVID-19. Whilst it is unlikely that a MAC provision directly addresses the nature of the COVID-19 event, it may cover external events affecting the assets and liabilities or earnings of the target company or business.
With government regulations forcing the closure of various businesses and the cancellation of events, individuals and businesses should consider whether they have a viable claim for any loss suffered under Australian Consumer Law. This might include, for example, relief in respect of misleading and deceptive conduct. Separately, some businesses may be experiencing unanticipated high demand for products or services they offer. Despite the high demand, non-market pricing restrictions may apply in the current unprecedented circumstances, and the risk of allegations of “price gouging” and cartel behaviour are increased if business plans are not properly implemented.
Businesses across many sectors of commerce will likely experience cash flow and liquidity issues. Company directors must be acutely aware of their director’s duties, particularly in relation to insolvent trading, and the protections available to directors of companies in financial difficulty through the ‘safe harbour’ provisions of the Corporations Act. Directors should seek specialist advice in relation to the best way to navigate any precarious financial situation.
Corporate Governance issues
Companies and AFSL holders need to consider the corporate governance issues that may arise, including but not limited to the company holding its annual general meeting and statutory obligations such as continuous breach reporting to the appropriate regulator. Companies with upcoming shareholders meetings, should consider the logistics for such meetings including live-streaming meetings and additional voting processes. Companies may wish to consider direct voting and other electronic voting processes. We can advise on the ability of companies to hold formal meetings via unconventional avenues or otherwise defer meetings where permissible under the organisation’s governing rules and the broader legislative frameworks.
Disclosure for listed companies
Listed companies should carefully consider the impacts or potential impacts of the COVID-19 pandemic including the company’s financial performance and the action being taken by the company and the board of directors to respond to these impacts. Boards should consider keeping the market updated with the company’s financial performance, particular if it is likely that the company will not meet its forecasts.
With businesses experiencing increased financial pressure and in many instances being forced to suspend trading, commercial tenants and landlords will need to understand their respective rights and obligations under their lease and in light of new government measures. This may include (for example) rent relief, termination rights, and exercising options. Parties may want to back out of contracts they have signed for the purchase of commercial or residential properties, particularly if they are having difficulty securing finance.
Each of the state and federal courts and tribunals have enacted measures to protect the public and court officers and staff during this time. This is causing some disruption to the running of new and existing cases.
Deutsch Miller Contacts
Deutsch Miller has introduced flexible working arrangements for our staff. We have the necessary technology and systems in place to effectively collaborate with our team and clients when working remotely. Deutsch Miller can assist with all of the abovementioned issues. Please reach out to any of the below contacts, or your regular Deutsch Miller contact, should you have any queries.
D + 61 2 9210 7772
M +61 408 865 495
D + 61 2 9210 7774
M +61 415 800 042
D + 61 2 9210 7771
M +61 413 579 587
D + 61 2 9210 7778
M +61 414 695 694
D + 61 2 9210 7779
M +61 422 441 355
Corporate and Commercial
D + 61 2 9210 7773
M +61 420 635 506
D + 61 2 9210 7744
M +61 421 913 065
D + 61 2 9210 7776
M +61 421 234 659
The above information is general in nature and not to be relied on as legal advice.
It is not intended to be an exhaustive list of all legal issues that may be relevant to businesses arising because of the COVID-19 pandemic.
The information is current as at 01 April 2020, but may change with the rapidly developing events.
COVID 19: Feel like tearing up your contract?
While some businesses are starting to ease back into work after their COVID-19 hibernation, most are still reeling to some degree from the impact of government restrictions, travel bans, interrupted supply chains, and the broader economic downturn. In the face of such challenges, you may be wondering whether there are grounds to be relieved from your contractual obligations.
COVID-19: Temporary changes to insolvency laws to provide relief for businesses and individuals
The Coronavirus Economic Response Package Omnibus Bill 2020 (‘the Bill’) came into effect on 25 March 2020 to provide a safety net to help businesses continue to operate during a period of temporary illiquidity caused by the COVID-19 pandemic and also assist individuals to manage their debt so as to avoid bankruptcy.