Key issues and solutions
As COVID-19 continues to disrupt Australia's economy, we address your challenges. Under the spotlight now is: enhanced protections for the COVIDSafe app but some key issues remain unresolved; steps to prepare for the rollback of restrictions and an updated guide to government powers; new tax relief measures for states and territories; further progress on remote signing of documents and shareholder meetings; RBA announces changes to help kick-start demand for corporate bonds; issues arising for retail banking and responsible lending; and revised eligibility for JobKeeper; and COVID-19's impact on non-compliance with conditions of planning and environmental approvals.
In addition, we continue to address the most pressing questions being asked across the business landscape. Select tiles below to jump to the relevant section or view all COVID-19 questions. For more insights and analysis on the business impact of COVID-19, visit our content hub.
Contact: Michael Park
Last updated: 16 March 2020
It is important to bear in mind applicable privacy obligations when managing risks in relation to COVID-19. Commonwealth Government agencies and private sector organisations (including companies, trusts, incorporated associated and sole traders), with an annual turnover of $3 million or more will need to comply with their obligations under the Privacy Act 1988 (Cth) in relation to any health information or other personal information collected relating to the COVID-19 outbreak. Most Australian states and territories have privacy laws, or other privacy-related obligations, that apply to government bodies in their state or territory. In addition, there is specific health records legislation in the ACT, New South Wales and Victoria that may apply in some circumstances.
Information about the health or medical status of an identified individual (such as whether an individual has been tested for COVID-19 and the results of that testing) is likely to be regarded as health information, which is a type of sensitive information that is generally the subject of additional protections under applicable privacy laws. Government agencies and organisations should carefully consider whether it is necessary to collect, use and disclose health information about identified individuals in the context of the COVID-19 outbreak. Consent from the individual is generally required for a government agency or organisation to collect health information about an individual, subject to some of the exceptions below.
Other information that government agencies or organisations may wish to collect (such as details of any countries an individual has travelled to recently) would not be regarded as health information. However, it would still be subject to generally applicable privacy obligations relating to the handling of personal information, including to give a collection statement setting out how an individual's information will be used, held and disclosed.
Government agencies and organisations can generally use and disclose personal information for:
- the primary purpose for which that information was collected;
- any purpose to which the individual has consented;
- purposes required or authorised by law; or
- related purposes (or directly related purposes, in the case of sensitive information such as health information) that the individual would reasonably expect.
As circumstances continue to evolve, it is likely that COVID-19 may be viewed as a workplace health and safety issue; or that the use and disclosure of health information and other personal information in connection with the COVID-19 outbreak may become reasonably expected by individuals.
Under the Privacy Act 1988 (Cth), Commonwealth Government agencies or organisations can also use and disclose personal information (including health information) without consent if it is unreasonable or impracticable to obtain the individual's consent to the collection, use or disclosure; and the entity reasonably believes that the collection, use or disclosure is necessary to lessen or prevent a serious threat to the life, health or safety of any individual, or to public health or safety. Depending on the circumstances, this may be a key exception to be relied upon in the context of the COVID-19 outbreak.
The Attorney General or the Prime Minister also has the power to make an emergency declaration, in certain circumstances, to permit the collection, use or disclosure of personal information in ways that would otherwise breach the Privacy Act. This power was used in connection with the recent bushfire crisis, but it remains to be seen whether it will be exercised again in relation to COVID-19.
Other limited exceptions may also apply in some fact-specific circumstances. There is a limited exception for private sector organisations (but not government agencies) that permits the use of disclosure of employee records (including health information about employees) for purposes directly connected with a current or former employment relationship. However, this exception has some limitations, in that only the organisation that is the direct employer of the individual (and not any other entity in a corporate group) can rely on this exception, which does not extend to individual contractors engaged by that organisation.
As the availability of some of these exceptions can be fact-specific, government agencies and organisations should seek specific legal advice about their particular concerns, including in relation to notifying at-risk individuals if an employee or customer is determined to have been exposed to or become infected with COVID-19. For example, it may be necessary to identify the relevant individual/s so that others within an organisation who may have had contact with an infected employee or customer can also be identified for screening purposes.
Government agencies or organisations should ensure that any disclosure of personal information (including health information) about an individual is permitted under one of options discussed above.
Disclosing entities should also consider the extent to which it is necessary to identify any individuals with possible COVID-19 symptoms, including both within and outside the entity. For example, it may be necessary to identify an individual with COVID-19 symptoms in an internal communication to all other employees working on the same floor as that individual (so that co-workers on that floor can identify whether they have had contact with that individual); but it may not be necessary to identify that individual in a company-wide email that is sent to other offices in Australia or internationally. In such a wider communication, it may be sufficient not to identify the individual in question, and instead simply state that an individual on a particular floor in a specific office has developed COVID-19 symptoms and appropriate actions are being taken.
Similar considerations would apply for external communications, including informing potential visitors who may have met with an individual with COVID-19 symptoms, or where an organisation is informed that an external visitor to that organisation has developed COVID-19 symptoms. In such circumstances, keeping comprehensive records of all meeting attendees would be a prudent step. This will ensure that any potential issues can be managed in the future, with an appropriately targeted communication to internal employees and external visitors who may have interacted with an individual who has developed COVID-19 symptoms.
The Office of the Australian Information Commissioner (the OAIC) has recently released guidance on understanding privacy obligations towards staff in light of COVID-19. The OAIC has recommended that Commonwealth Government agencies and private sector employers should aim to limit the collection, use and disclosure of personal information about their employees to what is necessary to limit and manage the COVID-19 outbreak; and take reasonable steps to keep personal information secure, including where employees are working remotely.
Collection, use and disclosure of information
The OAIC recommends that employers should collect as little information as reasonably necessary to limit and manage the COVID-19 outbreak. This includes information needed to identify risks and implement appropriate controls to prevent or manage COVID-19 – eg whether an individual (or a close contact) has been exposed to a diagnosed case of COVID-19 or if they have recently travelled overseas (and to which countries).
Consistent with our comments above, the OAIC's view is that employers may inform staff that a colleague has, or may have, contracted COVID-19 but should only use or disclose personal information as reasonably necessary to limit or manage COVID-19 in the workplace. Whether disclosure is necessary in the circumstances should be informed by the most recent advice from the Department of Health.
Working from home
The Privacy Act 1988 (Cth) does not prevent employees working remotely, but the Australian Privacy Principles will continue to apply. The OAIC suggests that a privacy impact assessment (PIA) may be useful in evaluating and mitigating risks to personal information. The OAIC also notes that Commonwealth Government agencies are required to undertake a PIA where there is a high-privacy-risk project that involves new ways of handling personal information. Other useful tips from the OAIC for protecting personal information when working remotely include:
- keeping up to date with the latest advice from the Australian Cyber Security Centre;
- ensuring continuous compliance with Protective Security Policy Framework requirements (if applicable);
- securing all electronic devices and storing the devices in a safe location when not in use;
- increasing cyber security measures and testing the measures ahead of time;
- ensuring all devices, virtual private networks and firewalls have necessary updates, the most recent security patches and strong passwords;
- using work email accounts for all work-related emails containing personal information;
- implementing multi-factor authentication for remote access systems and resources; and
- accessing and using only trusted networks and cloud services.
Our clients are seeing significant supply chain disruption; the cancellation of conferences, sporting events and international travel; closure of public places; and restrictions on movement. As businesses suffer broadening interruptions to their operations, complex (and often interrelated) questions regarding force majeure, breaches of contract and insurance coverage are emerging. Below are 10 of the most pressing questions clients are asking us and our thoughts on those issues.
There may be an entitlement to relief where your contract contains a force majeure (or equivalent) clause. It is important to consider notice provisions carefully.
You must determine whether the clause codifies the events giving rise to relief. Historically, many contracts included a pandemic head of relief, and that is now very likely to apply to COVID-19. Where the clause does not provide specific relief (and operates as a code) there is unlikely to be an entitlement. We have seen a number of recent claims by parties seeking to shoehorn a COVID-19 argument into a force majeure clause that purports to cover the field and lists, for example, natural disaster, lockout and/or civil unrest. Such claims are unlikely to succeed (see below).
Relief under a clause linked to the impacts of the exercise of governmental powers is likely to become increasingly relevant, as we see various jurisdictions (including at a state and federal level in Australia) take measures to control the spread of the virus.
There is no implied force majeure concept in Australia. However, this concept may be implied into contracts governed by civil law jurisdictions, including China, and you should consider the governing law of your contract and the place(s) of performance.
- Trigger events: You will need to demonstrate a causal nexus between the relevant event and the impact on your business. For a customer, while your demand for certain goods or services may have declined as a result of COVID-19, you will not necessarily be excused from an obligation to purchase minimum quantities of those goods or services under your contract if you are not prevented from complying with the purchasing obligation as a result of the virus. Hardship is unlikely to be relevant (on the buy and sell sides).
- Notice requirements: You may be required to give notice of the relevant event (in some cases, 'immediately') in order to seek relief.
- Known events: It is arguable that a party entering into a contract in late February, when the COVID-19 epidemic was known, will not subsequently be entitled to relief on the declaration of a pandemic.
- Requirement to mitigate: The terms of the contract may require you to show evidence that you have taken all reasonable steps to avoid the event or the impact of its consequences.
Some contracts include a right (often mutual) to terminate if the relevant event occurs for a specified period. There will likely be notice requirements, both when the event occurs and before termination.
There may also be consequences of termination for your business that you will want to consider, including liability for the counterparty's stranded costs, the effect on your commercial relationship with the counterparty, and reputational damage. There is also a risk of wrongful termination (or repudiation), for which the counterparty can claim damages, so you will want to ensure your termination rights are clear.
You may have the following alternative options available to you:
- Reduce the volume of services and/or goods you procure under the contract if your demand has dropped. This may involve revising your forecasts immediately.
- Exercise step in rights while your supplier is unable to deliver the goods and/or services.
- Consider alternative suspension rights under the contract that may be more suitable.
- Negotiate a commercial arrangement with your counterparty that is mutually acceptable in the circumstances.
In limited circumstances, you may seek to rely on the common law doctrine of frustration. This will bring a contract to an end in circumstances where an intervening event has occurred, through no fault of the parties, which makes a contractual obligation impossible to perform or transforms a contractual obligation into a fundamentally different obligation.
The doctrine of frustration has a very narrow scope. Frustration will not arise where there has been mere hardship – even if severe – where the event in question has been foreseen or where the change is only temporary or transient.
Courts have found that frustration has arisen in the following potentially relevant circumstances:
- a fundamental change in the basis of the contract;
- when the contract can no longer go ahead as envisaged;
- when an event occurs that has no immediate impact on the contract, but will foreseeably affect it in the future;
- supervening impossibility through government interference (possibly applicable, particularly if the Australian Government bans large gatherings of people); and
- a change in law rendering performance illegal (not relevant to COVID-19, at present).
Again, repudiation risk is a critical consideration. Damages may well be significant in the context of long-term relational contracts; it will be worthwhile to consider the potential consequences of repudiation, by reference to any limitation clauses (regarding consequential loss and or liability caps).
Reliance on a force majeure clause to obtain relief from performance will often lead to disputes. A particularly fruitful area for disputes relates to a failure to provide timely notification (in many circumstances, timely notification will be a condition precedent to an entitlement). We also commonly see disputes about the claiming parties' knowledge of the relevant events, and relating to the alleged nexus between the event and the impact on performance. For example, a supplier's claim might be contestable where impediments to performance can be reasonably overcome, including by finding alternative subcontractors; or if it fails to mitigate the effects of the event. Clearly, you should also assess whether resisting the supplier's claim will negatively impact upon your ongoing business relationship (and whether that is acceptable).
The doctrine will not apply where the relevant events are addressed in an appropriately drafted force majeure clause (or elsewhere in your contract). There are a number of examples of the courts holding that a claim for frustration must fail. Given the risk of repudiation, it is a high-stakes strategy and one that is likely to create disputes in the current environment. It is our expectation that suppliers in some industries will seek to rely on this doctrine, to obtain leverage to negotiate more onerous terms. In those circumstances, you need to make clear to suppliers that they must satisfy a very high threshold, by demonstrating that the contract is no longer capable of performance (through no default by the purchasers of goods and materials). The onus is on the supplier to establish that it satisfies that threshold, and purchasers ought to seek fulsome evidence and explanations as to how the contract has been said to be frustrated.
This is an option, provided the existing supplier has not been appointed on an exclusive basis. However, bear in mind that if you intend to continue the existing supply arrangement, you may be liable to pay your existing supplier once it becomes able to perform its obligations again. Flexibility should also be built in to any new supply arrangements, to take account of the current circumstances.
Where businesses need to find a new or replacement supplier (whether temporarily or on a longer-term basis), in the current environment they should draft the supply contract in a way that contemplates the commercial risks of COVID-19. The following provisions will be key:
- Priority clauses can be used to protect against the possibility of further shortages. These clauses may require the supplier to distribute its products on a pro rata basis among its customers, or even to prioritise one customer. Without these protections, most suppliers will be motivated to provide available stock to the highest bidder.
- Pandemic or contagion clauses can set out the parties' obligations in the specific event that supply is affected by COVID-19. Using a dedicated clause, rather than resorting to a general force majeure or exceptional event mechanism, will afford businesses greater control and certainty.
- Term and termination clauses should contemplate the broader commercial considerations of the business. If the replacement supplier is providing a temporary supply of goods or services while arrangements with the old supplier remain on foot, the new supply contract should be flexible, potentially containing a short term and termination provisions that allow for a quick exit by the customer.
You should review and understand the terms and conditions of your insurance arrangements, as each policy can differ significantly, depending on its wording.
The types of insurance that are particularly likely to be relevant are business interruption insurance (BII) and contingent business interruption insurance (CBII).
Generally, BII covers loss of income in circumstances where your operations are interrupted as a result of damage to the premises from which your business is conducted; whereas CBII insures against losses incurred because your ability to supply a product or service is interrupted due to an impact on your suppliers. Losses caused by interruptions due to epidemics or pandemics are often excluded in these types of policies but, in some cases, cover may be available. For example, some BII policies extend the concept of damage to include notifiable disease.
Take note of any excesses, the indemnity period and the limits of cover for these kinds of insurance policies. Prompt notice to insurers is also likely to be important.
Various measures have been taken and recommendations issued by public authorities to contain the spread of COVID-19. Indeed, some of these appear to be contradictory. Consequently, employers are having to take their own decisions and make some challenging judgment calls. While, for many, it is business as usual, we have observed a wide range of reactions so far, including requiring staff to work from home, closing offices, requiring specific employees to self-isolate, restricting business travel and recommending that employees reconsider personal travel.
A key control measure to slow the rate of the transmission of COVID-19 appears to be minimising human contact. Accordingly, many employers are cancelling conferences and work events, and restricting travel, opting instead for technology-based solutions to facilitate meetings and work connection.
Businesses that are eligible for the JobKeeper scheme will have more flexibility under the Fair Work Act to make changes to manage the workplace impacts of the COVID-19 pandemic, such as standing down employees or reducing their hours.
What is the JobKeeper scheme?
Eligible businesses can access a wage subsidy of $1,500 per fortnight for each eligible employee from 30 March 2020.
Who is eligible for the JobKeeper scheme?
Businesses with an annual turnover which is, or is likely to be, $1 billion or less are eligible if they estimate their GST turnover for a month or quarter represents a reduction in turnover of 30% or more when compared to the equivalent period in 2019.
Businesses with an annual turnover which is, or is likely to be, more than $1 billion are eligible if they estimate their GST turnover for a month or quarter represents a reduction in turnover of 50% or more when compared to the equivalent period in 2019.
Where businesses engage their employees through a special purpose entity, the combined GST turnovers of related entities who utilise the services of these employees will be used to calculate turnover reduction. For further details on the eligibility requirements, click here.
Eligible employees are those:
- currently employed (including those stood down or re-hired);
- full-time, part-time or regular and systematic casuals with at least 12 months' service with the employer; and
- not receiving a JobKeeper Payment from another business.
If a business is eligible to participate in the JobKeeper scheme they should nominate all of their eligible employees. That is, a business should not apply for the subsidy in respect of some eligible employees but not others.
What additional flexibilities are available to eligible employers?
Eligible employers under the JobKeeper scheme will be able to:
- stand down an eligible employee who cannot be usefully employed as a result of COVID-19 or government initiatives to slow its transmission;
- unilaterally reduce an eligible employee's hours;
- unilaterally change an eligible employee's duties and work location if it is safe, within the employee's skill and competency, and reasonably within the scope of the business; and
- agree with an eligible employee to change their work days or take annual leave (provided the employee keeps two weeks of annual leave).
These flexibilities supplement existing rights under the Act, awards and enterprise agreements. They will only apply until 27 September 2020.
Limits on eligible employers using these flexibilities
An eligible employer can only use these flexibilities under the JobKeeper scheme if they:
- reasonably believe it is necessary to save the eligible employee's job; and
- give prior notice (generally three days) and consult with employees and their unions.
Employers (who, under work health and safety laws, are persons conducting a business or undertaking (PCBUs)) have a primary duty to ensure, as far as reasonably practicable, the health and safety of their employees and all persons in their workplace. This duty requires employers to take steps to ensure so far as is reasonably practicable:
- their workplaces (which extend beyond their physical offices) are without health and safety risks; and
- they have safe systems of work.
In the current COVID-19 environment, this duty would require that employers at least:
- provide information about health risks posed by contact with the COVID-19;
- provide instruction about ways to minimise those health risks; and
- monitor, assess and take steps to mitigate the risks that COVID-19 poses to health and safety of workers in their workplace.
- staying up to date with current advice, including from:
- state and federal health departments, including: https://www.health.gov.au/news/health-alerts/novel-coronavirus-2019-ncov-health-alert;
- DFAT travel advices: https://www.smartraveller.gov.au/news-and-updates/coronavirus-covid-19;
- the WHO: https://www.who.int/emergencies/diseases/novel-coronavirus-2019;
- sharing information with your employees;
- restricting travel, where necessary;
- providing adequate hygiene facilities and instruction on hygiene practices;
- putting in place self-isolation or quarantine protocols; and
- having a contingency plan for when a worker tests positive for COVID-19, to mitigate the risks to the health of other workers and the risk of transmission in the workplace
Whether or not any employee travels in connection with their employment is within the control of the employer.
In normal circumstances, an employer can direct an employee to travel as part of their employment arrangements. However, where there are travel advisories recommending not to travel, or where there are government prohibitions in place, such a direction may not be reasonable and an employee may have a valid basis for refusing to comply with the direction.
In addition, an employer needs to consider their duty to the employee when considering directing travel to places – or, indeed, particular meetings or conferences – where this exposes the employee to unreasonable risk.
An employer cannot direct an employee to not travel in their personal time.
However, where that travel presents a risk to other employees, it would be open for the employer to require the employee to self-isolate on their return. Evaluating whether this is necessary should be undertaken in accordance with an appropriate risk assessment, including by reference to any government travel restrictions.
The employee may be able to self-isolate and continue working from home. However, where this self-isolation impedes the employee's ability to perform their duties, the employee may need to use their accrued leave. The employer should not direct the employee to use their personal leave or annual leave but, rather, inform them that they may access this form of leave if they do not want to be on unpaid leave.
Where the direction is based on a more general policy of 'social isolation' adopted by the employer, in the absence of a government direction to do so, an employee may be able to refuse.
However, the nature of COVID-19 means it is quite likely an employer will need to close a workplace, or part of a workplace, for a period of time, to assess the risk of infection, and clean the workplace to reduce the risk of further infections from residual virus within it. In such circumstances, the employer can direct employees to work from home, or from another location.
It would also be open for the employer to make this type of direction in relation to specific employees where it is necessary for an employee to self-isolate because they are at risk of having COVID‑19, as a result of travel, or exposure to others who are infected, or because they are otherwise unwell.
Employers should consider their work from home policies to evaluate whether they are appropriate for the current circumstances.
Where the refusal is based on a general concern about being infected, an employee can't refuse to come to work. However, if there is an unreasonable risk to the employee's health or safety, an employee may have valid bases for refusing. This might include where co-workers are known to be infected, or have travelled to at-risk destinations without quarantine or self-isolation.
Where an employee is unable to attend work because they:
- have COVID-19 or are otherwise quarantined;
- must self-isolate due to a government isolation requirement;
- have to care for others who are subject to quarantine or isolation requirements; or
- need to care for children who are unable to attend school as a result of school closures
these are matters within the employee's responsibility.
However, the employer should allow the employee to work from home if they are well enough to do so and it is possible for them to carry out their duties at home.
Otherwise, the employer should inform the employee that they may access their personal leave or annual leave, or otherwise can take a period of unpaid leave.
This may be different where an employee has contracted COVID-19 as a result of exposure at the workplace.
If an employer must shut down its operations for a period of time and its employees cannot be usefully employed, the employer could rely on the 'stand down' provisions contained in the Fair Work Act 2009 (Cth) to stand down its employees.
An employer can direct its employees to take annual leave (or other forms of leave) if an applicable modern award or enterprise agreement permits such a direction to be made (eg in circumstances where an employee has excess annual leave).
Any such direction must be reasonable and, in each case, specific requirements will apply, including providing the employee with advance notice.
If an employer is not permitted to direct their employees to take a period of leave, the employer can invite their employees to access their accrued leave, or, alternatively, take a period of leave without pay.
These are matters within the employee's responsibility.
However, the employer should allow the employee to work from home if they are well enough to do so and it is possible for them to carry out their duties at home.
Otherwise, the employer should inform the employee that they may access their personal leave or annual leave, or otherwise can take a period of unpaid leave.
This may be different where an employee has contracted COVID-19 as a result of exposure at the workplace.
Whether or not an employee who contracts COVID-19 has a workplace injury will depend on the circumstances of their infection. In many cases, it will be difficult to determine whether any infection occurred in the workplace; at least until there has been some tracking and contact tracing.
Where there is a risk that the infection is a workplace injury, an employer needs to consider its obligations to investigate and report these infections. The employee may also have particular rights that arise where the infection is a workplace injury (eg in relation to workers compensation).
On 24 March 2020, the Fair Work Commission varied the Hospitality Industry (General) Award to introduce temporary changes in response to COVID-19, following government orders to shut down various parts of the hospitality industry. Then, on Saturday 28 March 2020, the Fair Work Commission introduced temporary changes to the Clerks – Private Sector Award in response to the impacts of COVID-19 on clerical and administrative employees. We outline the key changes to each below.
Hospitality Industry Award - key changes
The following changes take effect immediately and operate until 30 June 2020:
- Allow employers to require employees to perform other duties, including to perform work across classifications, provided it is safe to do so and the employee has the necessary license and qualifications (eg Responsible Serving of Alcohol certificate)
- Allow employers to reduce ordinary hours of work:
- employers may reduce a full-time employee's ordinary hours to no lower than 22.8 hours a week, paid on a pro-rata basis;
- a part-time employee can be directed to work fewer hours, no less than 60% of their guaranteed hours per week;
- before issuing any direction to reduce hours, employers must consult with the employee and provide as much notice as practicable;
- the United Workers Union must be notified prior to implementing any changes where the employee is a member of the union; and
- leave entitlements continue to accrue based on the employee's existing (pre-variation) ordinary hours of work, even if their hours are reduced.
- Allow employers to direct employees to take annual leave:
- employers can direct employees to take annual leave, with 24 hours’ notice; and
- an employer and employee may agree to extended leave by the employee taking twice as much annual leave on half pay.
Clerks – Private Sector Award - key changes
The following changes take effect immediately and operate until 30 June 2020:
- an employer can agree (in writing, including by email) with an individual employee to reduce the employee's hours (including by more than 25%) or to move the employee temporarily from full time to part time hours of work, and reduce their pay proportionately;
- by mutual agreement, the span of hours for employees working from home can be changed to 6:00am – 11:00pm Monday to Friday, and 7:00am – 12:30pm on Saturdays;
- the minimum engagement for casual and part-time employees working from home has been reduced to two hours;
- an employer can direct an employee to take annual leave with one week's notice, as long as the employee is left with two week's annual leave after finishing the period of leave they were directed to take;
- by mutual agreement, annual leave can be taken for up to double the length of time at half the rate;
- if a close-down occurs, only one week's notice is required to direct employees to take annual leave; and
- the performance of work outside an employee's classification level is permitted.
- the Health Minister (Cth) can direct that the workplace (or any part of it) be closed to prevent or control the spread of COVID-19;
- the Health Minister (NSW) can similarly take any action or give any directions necessary to deal with risk to public health – this would extend to a direction that any premise be closed; and
- SafeWork NSW can issue a prohibition notice to require work to stop, if it were to deem the site unsafe (eg if it were to consider that the site was not properly cleaned and disinfected after a worker tested positive).
The Federal and State Governments have imposed restrictions on public gatherings and requirements to maintain social distancing to limit the rapid spread of COVID-19. This presents an obvious challenge for a number of Australian companies that are required to hold shareholders' meetings in the coming weeks and months.
In response to the issue, the Treasurer has used his emergency powers to temporarily modify the Corporations Act 2001 (Cth) to facilitate the holding of shareholder meetings without any attendees being physically present in the same place. The modifications, which are valid up to November 2020, go further than the guidance provided by ASIC (initially announced in March 2020 and amended on 13 May 2020) to temporarily change the law and override provisions in a company's constitution. This paves the way for companies to continue to engage with their shareholders in a manner consistent with public health requirements by holding 'virtual' meetings.
 Coronavirus Economic Response Package Omnibus Act 2020 (Cth)
The COVID-19 outbreak may result in information coming to light that must be disclosed to the ASX in accordance with a listed entity's continuous disclosure obligations under the ASX Listing Rules.
There are a number of foreseeable circumstances in which COVID-19, or matters relating to COVID-19, may give rise to market-sensitive information concerning a listed entity, such as in relation to earnings forecasts, employees, material contracts and financing arrangements; the supply of, and demand for, its products or services; as well as external considerations, such as government intervention. Such matters should be considered as part of a proper and ongoing assessment of a listed entity's disclosure obligations.
See Allens' Insight on listed entities' continuous disclosure obligations for more information.
COVID-19 is having a material impact on a number of entities and proving to be a fast-evolving challenge to business continuity. As listed entities navigate the issues and challenges at this time, they should, as always, diligently act to mitigate the risks of insider trading, which may be enhanced in this dynamic and uncertain environment.
In the context of COVID-19, this may involve reinforcing trading policies; considering closed and black-out periods for trading; controlling dissemination of information internally; and ensuring relevant information is publicly announced at the appropriate time, in accordance with the listed entity's disclosure obligations mentioned above.
This is especially important for at-risk businesses that are materially impacted by COVID-19. They may wish to amend trading policies so that they are more proscriptive: eg extending obligations to a wider group of personnel or to increase restrictions that key management personnel are already subject to.
The COVID-19 outbreak may have an impact on a number of provisions in commercial transaction agreements, including:
- conditions precedent;
- the occurrence of material adverse changes;
- force majeure and termination rights;
- repetition of warranties at completion; and
- restrictions on physical meetings.
Depending on the nature and stage of the transaction, proactive steps can be taken to mitigate the impact of COVID-19 by carefully managing the transaction timetable; the due diligence process; in-person meetings with counterparties, advisors and third parties; signings, completions and implementation steps. Parties should seek legal advice on the possibility of engaging regulators in the event of the need for any particular relief.
COVID-19 may have an effect on a company's external audit process, which may be interrupted by travel bans and other restrictions (particularly for on-site components of an audit). This could have a knock-on impact on a company's financial reporting obligations. It will be important to consider timing and ease of access (in accordance with the necessary security protocols) to relevant information and personnel, for external auditors to undertake the external audit process via alternate means, if required.
Helpfully, ASIC has extended the deadline for both listed and unlisted entities to lodge certain financial reports by one month. Listed entities will be able to take one additional month to report for full year and half-year financial reports for 21 February 2020 to 7 July 2020 balance dates (where such deadline has not already passed). Unlisted entities will now be able to take one additional month to lodge financial reports for year ends from 31 December 2019 to 7 July 2020 (where such deadline has not yet passed).
If listed entities rely on the extended period for lodgement, they must inform the market, and ASIC has suggested it may be desirable for listed entities to explain the reasons for relying on the extended deadline. Listed entities are still expected to lodge their Appendix 4E under ASX Listing Rules by the due date.
As noted by ASIC, where possible entities should continue to lodge within the normal statutory deadlines, having regard to the information needs of shareholders, creditors and other users of their financial reports, or meeting borrowing covenants or other obligations.
Boards will need to ensure they are receiving the necessary information to make informed decisions in a timely manner, while ensuring that they do not constrict management's crisis management abilities. This may involve the chairperson, or a member of the risk committee, and CEO working together to disseminate information between management and the board, and the board providing the necessary support to management at this challenging time.
Companies should consider the currency and sufficiency of their insurance coverage, including public liability, building and contents, travel, business interruption and D&O insurance cover. The terms and conditions of such insurance policies should also be considered carefully for potential exclusions (often in relation to viruses and pandemics). The currency and ambit of D&O insurance cover, in particular, should be considered, given an increased risk of directors' and officers' decisions being challenged in the aftermath of COVID-19.
While there is no one-size-fits-all approach, mitigation of business-interruption strategies from a corporate governance perspective that boards should consider implementing include:
- appropriate delegations of authority;
- effective electronic communication channels and the possibility of holding board meetings electronically;
- appropriate contingency plans in the event of unexpected vacancies on the board or board committees; and
- remote working arrangements for all personnel.
Whether a company can cancel, or defer payment of, a dividend will depend on a number of factors, including:
- the powers provided in the company's constitution;
- whether the dividend is an interim dividend or a final dividend;
- whether the board has declared or determined to pay the dividend; and
- the contents of any correspondence or other communications with shareholders or the market.
In general terms:
- if the directors have only 'determined' to pay the dividend at a future date (rather than 'declared' that dividend), the determination does not create a debt until the time fixed for payment arises. It is therefore revocable until that time; and
- if the directors 'declared' the dividend then, an irrevocable debt is created at that time.
- Remember, there are special tests that must be satisfied before a company can pay a dividend.
Listed entities should also comply with their disclosure obligations in relation to dividends. Including, any decision not to pay a dividend where an intention to pay such dividend was previously announced or a dividend was paid in respect to a prior corresponding period, or any decision to cancel or suspend a dividend that has already been determined.
If you are considering cancelling or deferring payment of a dividend you should contact one of our experts to discuss your specific circumstances and available options.
Listed entities should be undertaking a thorough review of all their material financing arrangements, and an assessment of the impact, or likely impact, of COVID-19-related matters on those arrangements.
The occurrence of an event of default under – or other event entitling a financier to terminate, or accelerate repayment of – a material financing facility may constitute market-sensitive information that would need to be notified to the market immediately under ASX Listing Rule 3.1.
The analysis can be more complex when considering potential or anticipated events of default or covenant breaches (and associated negotiations with lenders). These scenarios are usually fact specific, and require careful consideration, advice and monitoring.
Listed entities in these situations should contact one of our experts for advice on their continuous disclosure obligations and the options available under their financing arrangements.
The Federal and State Governments have imposed restrictions on public gatherings and requirements to maintain social distancing to limit the rapid spread of COVID-19. This presents an obvious challenge for a number of Australian companies that are required to hold shareholders' meetings in the coming weeks and months.
In response to the issue, the Treasurer has used his emergency powers to temporarily modify the Corporations Act 2001 (Cth) to facilitate the holding of shareholder meetings without any attendees being physically present in the same place. The modifications, which are valid up to November 2020, go further than the guidance previously provided by ASIC to temporarily change the law and override provisions in a company's constitution. This paves the way for companies to continue to engage with their shareholders in a manner consistent with public health requirements by holding 'virtual' meetings.
 Coronavirus Economic Response Package Omnibus Act 2020 (Cth)
The Treasurer has made a determination  that has the effect of amending the Corporations Act to allow shareholder meetings to be held solely by technology, which would allow a meeting to occur without attendees being physically present in the same place.
The modification broadly amends all relevant provisions of the Corporations Act that require or permit a meeting to be held, or regulate giving notice of a meeting or the conduct of a meeting. It also modifies any provisions of the Corporations Act that give effect to, or provide a means of enforcing, a provision of the company's constitution that might provide otherwise, effectively overriding it. The amendments are effective from 6 May 2020 and are valid for six months.
In order to have the benefit of the modification, companies must make sure:
- the notice of meeting includes information about how the meeting will be held;
- the meeting is held using technology that gives all attendees a reasonable opportunity to participate in the meeting (specific reference is made to the ability to ask questions); and
- all resolutions at the meeting are decided on a poll.
Technology may also be used in communicating with shareholders to provide notice or supplementary details of the meeting and facilitating the appointment of proxies.
Special rules apply for companies that have already called a meeting and are now seeking to hold their meeting virtually. Please contact us if this impacts you.
 Corporations (Coronavirus Economic Response) Determination (No. 1) 2020
Earlier in March 2020, ASIC provided guidance to the market in relation to the holding of annual general meetings for entities with a 31 December financial year end. ASIC said that it will take no action against those companies where:
- their AGM is postponed up to the end of July;
- their AGM is held as a 'virtual meeting' (discussed further below); and
- supplementary notices are issued to shareholders up to two business days before the scheduled date of the meeting that provide further instructions for regarding online participation.
On 13 May 2020, ASIC then amended its guidance to go further and apply to entities with a financial year end between December 31 and 7 July where those entities may hold their AGM up to seven months after their financial year end. ASIC's no-action also applies where an AGM is held up to February 2021 where a public company would otherwise breach the requirement to hold an AGM once every calendar year (though ASIC has advised those entities should not hold their AGM during the Christmas and New Year period).
In taking a 'no-action' position, ASIC acknowledged it was limited from alleviating otherwise mandatory requirements of the Corporations Act and provided its own significant health warning: its position would not stop other parties taking their own action or the court making a finding otherwise. ASIC would also be open to amending or revoking its position.
The Treasurer's modification goes further in applying to all entities and directly addressing the underlying legal position as to what the law and a company's constitution permits regarding the use of technology.
The modifications will be helpful for companies looking to hold a shareholder meeting in the next six months; however, for entities that have already held their AGM before the modifications becoming effective or are intending to hold their AGM after the Treasurer's modification is due to expire in November 2020, ASIC's position will be still be a source of comfort. It is also encouraging to see the regulator acknowledging the difficulties being faced by Australian companies at this time, and that it intends to be facilitative in working with them through this period and to continue to update its position as the circumstances change.
A 'virtual' meeting is one that is held entirely online. No physical place for the meeting is specified. Instead, all attendees, including the chair, participate from their own satellite locations using technology that allows them to, among other things, be counted in a quorum and vote and ask questions in real time.
Up until the Corporations Act was temporarily modified, the prevailing view was that virtual meetings were not permissible under Australian law, given the interpretation of the legislation required at least one physical location for company meeting.
In providing its guidance, ASIC noted there was 'some doubt' in this area, but nonetheless suggested that it will not object to companies with a financial year end between 31 December and 7 July from holding their AGMs in this way. The Treasurer's modification goes further and paves the way for all companies to hold meetings virtually up to November 2020, regardless of what the Corporations Act or their constitution might otherwise require.
The modification requires that the meeting be conducted in a way that gives all attendees a reasonable opportunity to participate. Specifically, the legislative instrument refers to providing the means such that those who are entitled to do so may vote and ask questions during the meeting. In preparing for a meeting, companies should be aware that the technology to be used must be specified in the notice of meeting.
ASIC has also issued guidance setting out its views – and flagging its concerns – on the appropriate use of technology and approach to shareholder engagement (particularly asking questions and voting at meetings) where a meeting is held pursuant to the modification. The regulator has advised that it is undertaking a 'program of observation' for shareholder meetings held during the period that the modification is in force and may provide further guidance if it feels it is necessary.
The Treasurer's modification to the Corporations Act allows for supplementary notices to be provided to shareholders setting out the details of how they can participate using technology if certain conditions are met. This overrides any other provisions in the Corporations Act or the company's constitution regarding how notice must be given.
Please contact one of our experts if you have already called a meeting of shareholders and would prefer to switch to a virtual meeting.
A public company with more than one member would ordinarily be required to hold an annual general meeting within five months after the end of its financial year and at least once in each calendar year. A public company that is yet to call its AGM may consider delaying the timing of the meeting, particularly if it intends to rely on ASIC's no-action position (described earlier in the section titled 'What does this mean for ASIC's guidance?'), which extends the period to seven months and into the 2021 calendar year if required.
A public company may apply to ASIC to extend the period within which it must hold an AGM. The application must be lodged before the last date on which the AGM must otherwise be held. ASIC will consider each application on its merits, and has indicated in its regulatory guidance that it will usually be inclined to grant an extension of time if:
- the inability of a company to hold its AGM on time is due to factors beyond its control; or
- ASIC is persuaded that it is in the interests of the shareholders to do so.ASIC's guidance notes that ASIC doesn't have the power to modify the relevant provisions of the Corporations Act, and so isn't in a position to negate the requirement to hold a meeting or provide class order relief to avoid needing to apply for an exemption on a case-by-case basis. However, ASIC has adopted a two-month period of 'no objection' for certain entities that delay their AGMs.
- The Treasurer's modification of the Corporation Act only considers the manner in which a meeting may be held, not the timing of the meeting, so isn't strictly relevant. However, companies, including those that fall outside of the class of companies to which ASIC's guidance applies, may feel that the acute need to delay a meeting may no longer be required, given the modification takes away the legal uncertainty that a meeting can be held virtually in the current circumstances.
- ASIC's assessment is guided by judicial principles that the obligation to hold an AGM 'should be relaxed only for good cause shown'. In the current environment, we expect ASIC will consider each application on a case-by-case basis, having regard to matters including timing, travel restrictions, the recommendations being made by other government agencies, and the availability of technology (as described below). However, given the uncertainty surrounding the likely duration of the COVID-19 outbreak, delaying the meeting may not be the best option.
 Corporations Act 2001 (Cth), section 250N.
 Corporations Act 2001 (Cth), section 250P.
 Chief Justice Bowen in Re Gem Explorations and Minerals Ltd  2 NSWLR 584.
There is no provision under the Corporations Act or common law power that would allow a public company to postpone or cancel a meeting once it has been convened. Any postponement requires an express provision in the company's constitution.
If a company's constitution specifically permits the postponement or cancellation of a meeting after it has been convened but before it is held, further notification will need to be provided to all persons who received notice of the meeting. Companies should consider any specific notice requirements set out in their constitutions.
Both the Treasurer's modification to the Corporations Act and ASIC's guidance contemplate giving supplementary details regarding the manner in which a meeting will be held, but not postponing the meeting itself. We discuss this in more detail in the section titled 'Can a public company that has already called a meeting switch to holding a 'virtual' meeting?.
ASIC has indicated that its position is under continuous review. As the various federal and state authorities put in place policies and strategies to respond to COVID-19, and ASIC continues its 'program of observation', the regulator may continue to develop its position.
The modifications to the Corporations Act to facilitate virtual meetings will automatically be repealed in November 2020. Further, ASIC's current position only applies to annual general meetings, and not meetings that may need to be held in the period, such as scheme meetings.
Given government and health authorities are advising that COVID-19 may cause disruption for many months to come, both the Treasurer and ASIC may have cause to revisit both the scope and period of their temporary relief to manage the fallout from COVID-19.
Ultimately, these emergency measures are an acknowledgment of the limitations under the existing regime. The Treasurer's and ASIC's support for the use of technology in company meetings, which is not otherwise clearly enshrined in the legislation, demonstrates that need for future regulatory reform. Once the response to COVID-19 stabilises and the Federal Government is in a position to conduct a consultation on the issue, there will be good reason to consider adopting a clearer approach for companies to utilise technology to hold shareholder meetings.
We have worked with many companies and their registry and technology providers during this period of uncertainty brought about by COVID-19 to plan for and hold virtual AGMs. Please contact us if you would like to discuss the options that are available to your organisation.
The COVID-19 outbreak has brought with it a complex interplay of federal and state governmental powers to control and manage the declared pandemic. In general, the Federal Government's role has been to provide policy leadership, coordination and funding, as well as to implement measures within its constitutional powers, such as travel restrictions and quarantine requirements. The role of the states and territories has been to implement measures relating to health and emergency management within their respective jurisdictions.
As these roles continue to play out, and with Government now looking to ease certain of the COVID-19 restrictions that are currently in place, we are continuing to see a range of new or updated measures at both federal and state and territory level each day. To support businesses as they manage these unprecedented challenges, we have prepared the following guide to the key powers available to Government during a health crisis, as well as how those powers have been used in response to the COVID-19 emergency. For further guidance, and our recommendations for businesses as they navigate the rollback period ahead, see here.
The Federal Government and state and territory governments each have very broad, but not unlimited, powers in relation to a public health crisis. Many of these powers have now been exercised by government to implement emergency measures in response to COVID-19.
A key source of power for government at the federal level is the Biosecurity Act 2015 (Cth). This Act provides the Federal Health Minister with a range of powers to implement biosecurity arrangements so as to curtail the spread and severity of 'listed human diseases'. COVID-19 is currently designated by the Department of Health as a listed human disease.
Following the declaration by the Governor-General on 18 March 2020 of a 'human biosecurity emergency', the powers of the Federal Health Minister were expanded to include a range of very broad emergency powers. As discussed further below, these emergency powers have since been used to implement a range of measures in response to COVID-19.
The Federal Government may also exercise power under a range of other statutes in order to respond to the COVID-19 outbreak, including, for example, the Customs Act 1901 (Cth), which permits the Governor-General to prohibit the export of goods from Australia. Many of these powers have also been deployed to support the Federal Government's approach to the current crisis.
State and territory governments
The states and territories each have separate legislative powers that have enabled them to implement relevant biosecurity arrangements in their respective jurisdictions, and have a range of public health and emergency response powers under existing legislation. These include powers of detention and forced quarantine. As the COVID-19 emergency has unfolded, the state and territory governments also have shown a willingness to pass legislation to amplify existing powers when required.
In a number of jurisdictions, steps have also been taken to ensure that the executive branch of government can respond proactively to the legal challenges presented by the COVID-19 outbreak. This includes, for example:
- in Victoria, the grant of regulation-making power to the Governor in Council to allow regulations to be made in relation to a range of laws, including certain procedural requirements, as well as retail leases and non-retail commercial leases and licences;
- in NSW, the grant of power to the executive to temporarily amend certain statutes (such as the Powers of Attorney Act 2003 (NSW), the Conveyancing Act 1919 (NSW), and the Oaths Act 1900 (NSW)) in certain circumstances;
- in QLD, the establishment of a 'legislative modification framework' to permit certain legislative requirements, such as in relation to certain procedural requirements, to be modified where required; and
- in Tasmania, the introduction of the COVID-19 Disease Emergency (Miscellaneous Provisions) Act 2020 (Tas) to give power to the Premier, the Treasurer and the Attorney-General to make declarations by public notice to adjust the operation of a range of statutory requirements including, for example, statutory timeframes and planning laws.
The Australian governments, both at Federal and state and territory level, have introduced a number of emergency measures in response to COVID-19. Many of these measures are directly relevant to businesses, their employees and their customers, and so should be carefully considered.
In some cases, particularly when implemented at state or territory level, the measures are not uniform across Australia. This trend is expected to continue, with state and territory governments across Australia each adopting their own timeline for easing the restrictions currently in force, having regard to the particular circumstances of their respective jurisdictions. As a general guide, however, the core measures relevant to businesses can be understood as falling into 7 main categories.
'Stay at home' directions
A number of jurisdictions have now implemented 'stay at home' directions. Directions of this kind generally require a person not to leave their place of residence, except where an exemption applies. Examples of these restrictions can be found in the 'Stay at Home Direction' in Victoria and the 'Public Health (COVID-19 Restrictions on Gathering and Movement) Order' in New South Wales.
Exemptions are generally available to permit a person to leave their place of residence for the purposes of, among other things, obtaining essential supplies or attending work where they are unable to work from home. However, the precise wording of the restrictions applicable in each jurisdiction, and the available exemptions, can vary, and must therefore be considered on a case by case basis, particularly as governments look to ease, or otherwise revise, these restrictions in the short-term future.
These restrictions can impact businesses in a number of ways, including by restricting the ability of employees to attend work or customers to attend physical premises.
Not all jurisdictions throughout Australia have adopted stay at home restrictions. As of the date of this article, the jurisdictions in which stay at home restrictions have been implemented are Victoria, New South Wales, Queensland and Tasmania. However, it is possible that restrictions of this kind may be introduced into other jurisdictions in the future, particularly if further outbreaks occur.
Throughout the COVID-19 emergency, gathering restrictions have been implemented in some form in each Australian jurisdiction, although in the Northern Territory, the core restrictions have now been revoked.
These restrictions are often found in the same order or direction as any 'stay at home' restrictions. Examples of these restrictions can be found in the 'Home Confinement, Movement and Gathering Direction' in force in Queensland and the 'Closure and Restriction (Limit the Spread) Directions' in force in Western Australia.
Restrictions of this kind generally prohibit persons from gathering in certain numbers at certain places. The relevant direction will, in some cases, also impose obligations on third parties (such as owners or occupiers of premises) to prevent certain gatherings from occurring.
These restrictions can have a significant effect on businesses by, among other things, restricting the number of employees or customers who can gather in a particular place at a given time. They may also have a number of other indirect effects.
A number of the directions currently in force across Australia include density restrictions. These restrictions generally apply to owners or occupiers of premises, and require such persons to ensure that the total number of persons present in a particular place does not exceed a specified 'density quotient'.
The density quotient, and therefore the total number of persons permitted in a given space, will generally depend on the size of the space itself. For example, in Victoria, under the Restricted Activity Direction currently in force, the density quotient of a single undivided indoor space is calculated by dividing the total area of the space in square metres by four.
These restrictions can affect businesses by requiring them to monitor and control the number of staff and/or customers who are present in a given place at a particular time and in this way, can have a similar practical effect to gathering restrictions. In some cases, ancillary obligations (such as those relating to signage) will also apply.
Density restrictions have not been imposed in a uniform fashion across Australia. As such, their precise application to your business should be carefully considered in each relevant jurisdiction.
Restrictions on non-essential businesses
Restrictions on non-essential businesses have been implemented in some form in each Australian jurisdiction, and continue to be updated and amended as the COVID-19 emergency continues and the needs of the broader community evolve. Examples of such measures can be found in Victoria's Restricted Activity Directions, as well as the Northern Territory's 'Directions to Close Public Places, Services and Activities'.
These restrictions generally prohibit or otherwise limit the operation of a range of specified non-essential businesses. In some cases, the operation of a particular business will be prohibited outright. In other cases, a particular business will be permitted to operate on a limited basis, provided it complies with a range of conditions (including, for example, social distancing and other hygiene measures).
These restrictions can clearly have a significant impact on businesses by prohibiting or otherwise limiting their operation. Further, even if a business is permitted to operate, it may be required to comply with a range of conditions (in addition to those applicable under the separate gathering and density restrictions in force in the relevant jurisdiction).
In order to control the spread of COVID-19 throughout Australia, both the federal and state and territory governments have introduced a range of measures relating to border control. The nature and severity of these measures vary depending on the jurisdiction.
At the federal level, such measures include:
- restrictions on access to remote communities in South Australia, Queensland, Western Australia and the Northern Territory;
- restrictions on Australian citizens and permanent residents from travelling overseas (subject to certain exemptions); and
- screening requirements for persons leaving Australia to certain destinations.
At the state or territory level, measures include:
- border closures in Queensland and Western Australia;
- a range of quarantine or isolation requirements for persons arriving in Victoria, New South Wales, South Australia, Tasmania, Northern Territory and Australian Capital Territory, and persons arriving in Western Australia or Queensland who are exempt from the border closures; and
- restrictions on access to certain regional areas or islands within state or territory borders (such as in New South Wales, Western Australia and Tasmania).
These measures may impact businesses in a range of ways, including by restricting or otherwise disrupting the movement of their employees and other personnel, affecting supply chains and causing a range of other logistical issues.
As part of its response to the COVID-19 outbreak, the Federal Government has also taken steps to ensure the continuing availability within Australia of certain healthcare and hygiene products. To that end, the Federal Government has introduced restrictions under the Customs Act 1901 (Cth) prohibiting the export of products such as disposable face masks and gloves, hand sanitiser and alcohol wipes. These restrictions are subject to a number of exemptions, including for manufacturers and persons who export such goods in the ordinary course of their business. Further restrictions of this kind may be introduced as the situation develops.
Amendments to planning and retail trading laws
Various state and territory governments have amended planning and retail trading laws to ensure that members of the community continue to have access to important supplies during the COVID-19 outbreak and more broadly to permit certain development (without further approval) where it is necessary to ensure the health, safety and welfare of the public. Such measures include the following:
- In Victoria, the Victoria Planning Provisions have been amended so as to remove planning restrictions on the hours or days during which the loading and unloading, dispatch and delivery of food and other essential goods can occur. The purpose of this amendment is to allow supermarkets, hospitals, pharmacies and other essential businesses to continue to meet significant community demand. Unusually, the new provision, which is embedded in all Victorian planning schemes, purports to override the conditions attaching to existing planning permits.
- In NSW, the Environmental Planning and Assessment (COVID-19 Development – Extended Operation) Order 2020 (NSW), allows for all retail premises (not just supermarkets, pharmacies and corner stores) to operate 24 hours per day. Provisions have also been made to override permit restrictions on delivery hours, to allow for 24 hour delivery.
- In Queensland, amendments have been made to the Planning Act 2016 (QLD) to allow the Minister for Planning to permit certain essential businesses such as supermarkets, to operate 24 hours a day, seven days a week during an event such as the COVID-19 pandemic. The Chief Health Officer has also issued a notice under the Public Health Act 2005 (QLD), the effect of which is to permit businesses used predominately for the sale of food or groceries to open from 7am on a day the business is permitted to trade until the end of the COVID-19 emergency.
- In the Northern Territory, the Planning Minister and Development Consent Authority have lifted restrictions imposed through conditions under development permits which limit the hours of operation or times of delivery for food and retail businesses for the duration of the COVID-19 pandemic.
- In Western Australia, the Planning and Development (Local Planning Schemes) Amendment Regulations 2020 (WA) have been introduced which, among other things, permit the Minister in certain circumstances to issue exemptions from planning requirements during a state of emergency. An exemption must be necessary for the purpose of facilitating response to, or recovery from, the COVID-19 emergency.
- In South Australia, the legislative regime has been amended in response to the COVID-19 emergency. The amendments, among other things, exempt certain persons from the need to comply with any development approval restrictions relating to loading or unloading goods at the shop at any time, or opening the shop to the public at any time. This exemption applies to anyone operating a shop used primarily for the sale of foodstuffs by retail, or any other kind of persons operating premises of a kind specified by the Minister.
A business which stands to be affected by an order of government, such as one affecting its ability to trade, may be able to seek an exemption in certain circumstances.
Whilst in general, there is no specific legislative framework setting out the process by which such exemptions can be sought, several of the orders which have been imposed to date specifically contemplate the grant of written exemptions.
Businesses should consider whether they are or are likely to be affected by an order of government, and take proactive steps to seek out appropriate exemptions if needed.
Although very broad, the powers of the Federal Government, and state and territory governments, are not unlimited.
Under the Biosecurity Act, for example, the power of the Federal Health Minister to determine emergency requirements during a human biosecurity emergency is limited to measures which they consider necessary to 'prevent or control' the disease, or to implement certain recommendations of the World Health Organization. This power may also only be exercised during a human biosecurity emergency period, although the duration of that period may be extended by the Governor-General.
Similar considerations apply under state or territory based legislation.
There are also a number of principles at general law, which may serve in certain circumstances, to constrain the exercise of government power.
Under the Biosecurity Act, the penalties for contravening determinations made regarding a listed human disease (which include preventative biosecurity measures and requirements imposed on entry to or exit from Australia) include financial penalties, and contravention of a human biosecurity control order may also involve imprisonment (for five years).
Penalties for contravening determinations or directions made under the special powers of the Federal Health Minister during a human biosecurity emergency declaration period (including, for example, emergency restrictions on overseas travel) include imprisonment for individuals (for five years), and/or financial penalties.
There are also separate penalties for non-compliance with other relevant Federal, state and territory legislation.
The Federal Government continues to progressively announce and subsequently implement a series of economic stimulus packages and other measures in response to the economic impact of COVID-19. These include direct funding support for targeted businesses, new government projects as well as relief from government charges or taxation.
Among the initiatives are the following:
- $130bn 'JobKeeper Payment' - Under this scheme, businesses which are impacted by COVID-19 can access a wage subsidy from the Federal Government in order to continue to pay their employees. Affected employers can claim fortnightly payments of $1500 per eligible employee from 30 March 2020, for a maximum period of 6 months. For further details on the eligibility requirements, click here.
- Cash flow support for small and medium-sized businesses – The Federal Government is providing temporary cash flow support of between $20, 000 and $100, 000 for certain eligible small and medium-sized businesses as well as not-for-profits.
- Temporary relief for financially distressed businesses – The Federal Government has temporarily increased the threshold at which creditors can issue statutory demands on companies, as well as the time that companies have to respond to such demands.
- Increase to the instant asset write-off – The Federal Government has increased the instant asset-write off threshold to $150, 000 (up from $30, 000) until 30 June 2020. Access is expanded to included businesses with an aggregated annual turnover of less than $500m (up from $50m).
- Support for business investment – The Federal Government is providing a 'time limited 15 month investment incentive' to support business investment in the short-term future. As part of this incentive, businesses which have a turnover of less than $500m are able to deduct 50% of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset's cost.
- Support for COVID-19 affected regions, communities and industry sectors – The Federal Government has also established a $1bn COVID-19 Relief and Recovery Fund to support regions, communities and industry sectors which are most significantly affected by COVID-19. Initial measures which have been introduced include, among others:
- a $110m freight service to allow the agricultural and fisheries sector to export their produce and to reconnect with international customers;
- $49.8m in funding for the Export Market Development Grants program in the 2019-20 financial year, to enable exporters and tourism business to obtain additional reimbursements for their costs incurred in marketing their products and services worldwide; and
- a $94.6m support package for zoos and aquariums, which are seen to be crucial to the visitor economies of a number of regional towns across Australia. The funding will assist with the fixed operational costs associated with the care of animals.
- Support for the airline industry – The Federal Government has announced, and is in the process of implementing, a range of measures to support the airline industry, including:
- an estimated $715m package providing relief from various taxes and government charges;
- a $198m Reginal Airlines Network Support program to underwrite flights to regional and remote communities; and
- a further $165m in support for Qantas and Virgin to operate a minimum domestic network serving the most critical metropolitan and regional routes throughout Australia.
- Support for the aged care sector – The Federal Government has announced a one-off $205m support payment for providers in the aged care sector. Providers will receive approximately $900 per resident in major metropolitan areas, and approximately $1350 per resident in all other areas.
- Support for the legal assistance sector – The Federal Government has announced an additional $63.3m in support for the legal assistance sector, including $49.8m for additional frontline legal services and $13.5m for IT costs so as to support the sector's transition towards the virtual and online delivery of legal assistance.
- Funding for COVID-19 research – As part of its $352m pledge to the European Union to support the development of a vaccine, the Federal Government is providing $337m in funding to support COVID-19 research and development work on vaccines, diagnostics, therapeutics and respiratory medicine in Australia.
- Fast-tracking the $1bn Pacific Motorway upgrade in the Gold Coast – The $1bn M1 Pacific Motorway – Varsity Lakes to Tugun project is being jointly funded by the Federal and Queensland governments, with each contributing $500m. The project has been fast-tracked so as to reduce congestion and create jobs to assist in the COVID-19 recovery.
Further information about the Federal government's economic response to the COVID-19 outbreak is available here.
To support the Federal Government's response, a number of supplementary economic stimulus packages or other economic measures have also been announced, and are being implemented, at state and territory level. Examples of such initiatives include, among other things, emergency cash grants for certain eligible businesses or not-for-profits, waivers of certain government fees and charges, and payroll tax relief. A number of state governments have also taken steps to fast-track existing projects so as to stimulate the economy and create jobs, including the NSW Government which has announced accelerated assessment processes for 24 projects, such as the construction of new homes,
industrial complexes and schools.
Further information regarding the economic measures being implemented by the states and territories is available at the following links: New South Wales, Victorian, Queensland, South Australian, Western Australian, Australian Capital Territory, Tasmanian and Northern Territory.
As outlined in the Prime Minister's 19 March press statement, the federal stance is that a vessel may berth in Australia at any time; however, if the vessel arrives within 14 days from its last international port of call, the following restrictions apply:
- all crew must remain on board while the vessel is berthed in Australia;
- crew are able to disembark to conduct essential vessel functions but must wear personal protective equipment (PPE) while performing these functions; and
- crew must use PPE in public spaces on board the vessel while non-crew members are on board.
These restrictions apply until 14 days have elapsed since the vessel departed the last foreign port before Australia, unless crew are unwell or there is a suspected case of COVID-19 on-board.
- The period maritime crew spend at sea before their arrival in Australia counts towards the 14-day period of self-isolation
- Shore leave can be taken once the 14-day period has elapsed, so long as no crewmember has demonstrated signs of illness or is suspected of having COVID-19.
Further, The National Cabinet has recently agreed that the Australian Government and all states and territories will implement a consistent and immediate exemption for non-cruise maritime crew to provide for the transiting to and from their places of work, within and across jurisdictions with agreed documentation. National Cabinet noted that states and territories may adopt additional protocols in consultation with industry that creates protection for crews on board vessels, and will put in place appropriate penalties for companies and individuals that are found to be in breach of the requirements of the exemption which will be reviewed on 1 June 2020.
It looks like all the states are mostly aligned with the federal policy at the moment. Some states have chosen to implement measures beyond the federal requirements:
- Queensland's ports are also prohibiting ships that had their last port of call in China or South Korea from coming into their ports until 14 days have passed – meaning they will be in offshore quarantine for this time.
WA and Tasmania have adopted the National Cabinets exemption for non-cruise maritime crew. They have implemented the following rules:
Crew members may disembark an affected vessel if:
- They have a flight out of the state in the next 24 hours;
- They remain on the ship until they have to leave to get to the airport;
- They take the most direct route, without stopping unless by law or for petrol, to the airport;
- They take care to follow COVID-19 guidelines (social distancing, and hygiene etc.).
- They are going to a hotel to isolate before their flight;
- Only leave the hotel when it is necessary to get to the airport.
- They are a state resident and have a suitable premise to self-isolate for 14 days.
- They are boarding another vessel at the same port;
- They go directly to the vessel and board immediately.
The Coronavirus response is being managed by the Federal Government Department of Agriculture, the Department of Health, and by relevant authorities at state level.
At a state level, the following statutes:
- WA: Port Authority Act 1999;
- QLD: Government Owned Corporations Act 1993 and Transport Infrastructure Act 1994;
- NSW: State Owned Corporations Act 1989 and Ports and Maritime Administration Act 1995;
- VIC: Transport Integration Act 2010 and Marine Safety Act 2010;
- SA: Harbors and Navigation Act 1993;
- NT: Ports Management Act 2015; and
- TAS: Tasmanian Ports Corporation Act 2005,
give port authorities control over the port and any powers necessary to perform its functions, which generally include the power to control business and other activities in the port, facilitate trade within and through the port, and be responsible for the safe operation of the port.
The federal 14-day quarantine policy will override the port's powers under state law. Port authorities will therefore be bound by the 14-day isolation rule but can also implement stricter protocols if they wish to.
As a result of the South Australian Government closing their borders and the mandatory 14-day self-isolation period for every person that visits the State, SA ports will now restrict any visiting crews to their individual ships. No shore leave is being granted to any ship’s crew. They are permitted to come onto the wharf to perform their normal functions but they will be isolated from local port staff and the public.
The Australian Border Force has also stated it will increase the number of patrols at all South Australian ports to ensure these new rules are adhered to.
With COVID-19 creating challenges for Australia's commercial landlords, we examine their rights, obligations and liabilities under existing leases. Landlords are facing a range of issues including reduced office occupancy, business continuity concerns in certain sectors and trying to navigate how to respond most appropriately to their tenants' requests. Similarly, commercial tenants are also facing a different set of challenges. Here, we explore their rights, obligations and liabilities under existing leases and examine whether insurance is likely to offer some protection in these circumstances. The Prime Minister announced on 20 March 2020 that State and Territory governments would be working on model rules designed to support tenants experiencing hardship due to coronavirus. The WA State government together with NSW has been tasked with leading the development of new model rules focussed on bringing relief to tenants experiencing hardship. There is no information as to what the model rules may look like at this time but they could include rent abatement.
If a landlord elects to close all or part of the premises, tenants may be able to claim against the landlord for breach of the covenant for quiet enjoyment; this could include a claim for loss of income. Some tenants might be impacted more than others, particularly if there is only a partial closure. Depending on the wording of the lease, the landlord may be entitled to close the premises in cases of emergency or restrict access to common areas; this may preclude a claim for breach of quiet enjoyment. If a landlord is forced to close the premises due to a government order, depending on the provisions of the lease, complying with this order may not breach the quiet enjoyment covenant. Usually, leases will include a provision requiring both parties to comply with all relevant laws, meaning that tenants would also be obligated to adhere to any government ban and vacate the premises as required.
Frustration brings a contract to an end where, through no fault of either party, an intervening, post-contractual event has occurred which makes performance of the contract impossible or radically different. Whether frustration has occurred will depend on the terms of the lease and circumstances of the case. While there may be an argument that a government ban on occupation of, or trading from, the premises could frustrate the lease agreement, frustration has a narrow scope and is difficult to establish. Case law indicates that a temporary change, such as the short-term closure of rented premises, would ordinarily not be enough to frustrate a lease. It is likely the lease will continue during any period of forced closure.
As mentioned above, due to the very limited application of frustration to leases, tenants will continue to be bound to pay rent under the lease even if they are unable to use the premises during a period of closure. Whether they are (strictly) entitled to a rent abatement or other concession will depend on the exact wording of the lease. Given the highly unusual and rapidly evolving circumstances of the COVID-19 outbreak, landlords may wish to consider all options, including potentially reaching a commercial arrangement on payment of rent.
If the lease includes an obligation on the tenant to keep the premises open or to actively trade from the premises, a tenant's decision to voluntarily close its premises due to the spread of COVID-19 may (depending on the relevant retail legislation if the shop is a retail shop, the wording of the clause and any carve out) breach this obligation. However, Australian courts have stated that specific performance and injunctions compelling a lessee to trade will only be ordered in exceptional circumstances. This means the landlord would be unlikely to obtain a court order to force the tenant to re-open (although they may have a damages claim). In the event of a government-mandated closure, it is unlikely the landlord would be able to enforce an obligation on the tenant to keep the premises open or to actively trade from the premises. The tenant's obligation to comply with all relevant laws would likely trump the keep-open obligation.
Most service charges provide for the recovery of cleaning costs. Although deep or more frequent cleaning costs are likely to be over and above those of typical cleaning, they would still be recoverable. Further, an obligation on the landlord to manage the building in a professional manner will usually allow a landlord to recover these costs.
Usually, it will be for the tenant to consider any threat to the health and safety of its employees. However, landlords who are employers will also have duties of care to their staff and others (including visitors) to the extent that they exercise control over parts of premises (eg common parts). See our issues in the workplace section for more.
On 24 March 2020, the Prime Minister announced that food courts in shopping centres will be closed nation-wide. No time limit was given to this closure. Your lease will likely contain a clause that requires you, and the tenant, to comply with all laws and requirements of authorities from time to time that relate to or affect the premises. If you are the landlord of premises with a food court, you and, importantly, your tenant, will need to comply with this order. We do not consider that the order from the Government will entitle the tenant to rent abatement for the period of the closure, nor give rise to a claim by the tenant for compensation under the retail legislation. In addition, a temporary closure of this nature will likely not result in frustration of the lease. However, it is possible that an extended closure might result in frustration of the leases. You should also note that such a closure will likely not result in you, as the landlord, breaching the lease by failing to allow your tenants the benefit of quiet enjoyment, or by failing to operate the centre.
You should also be aware that this is most likely not the last of the Federal Government's announcements in relation to shopping centres. The Prime Minister indicated that landlord and tenant issues will be considered in the National Cabinet meeting on 25 March 2020.
Retail landlord issues
The Retail Legislation in all jurisdictions of Australia include provisions requiring compensation to be paid to tenants including situations around business disturbance. While the various provisions have a common theme there are some important differences, particularly around exceptions for emergency situations.
The Retail Legislation
In NSW, s34 of the Retail Leases Act 1994 (NSW) provides that a landlord must pay reasonable compensation for any loss or damage suffered by a tenant if the landlord:
- inhibits access to the shop in any substantial manner; or
- takes any action that would inhibit or alter, to a substantial extent, the flow of customers to the shop; or
- unreasonably takes any action (considering recognised shopping centre management practices) that causes significant disruption or has a significant adverse effect on, trading in the shop; or
- fails to take all reasonable steps to prevent or put a stop to anything that causes significant disruption of, or which has a significant adverse effect on, trading in the shop and that is attributable to causes within the landlord’s control.
Note that the section specifically refers to actions taken by the landlord. This is consistent across all jurisdictions.
In WA, in addition to the above, the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) specifically provides that any provision in a lease which requires a tenant to open a retail shop at specified hours or times is void. Accordingly, where a tenant wishes to close for any reason in WA (not just as a result of Covid-19) a landlord cannot insist that the tenant continue to trade.
Exception for Emergency
There is an exception for an emergency situation in NSW, Qld, Vic, SA, the ACT and the NT (but not WA or Tas), if the action taken by the landlord was a reasonable response to an emergency situation or to comply with a requirement of a relevant Authority or an Act.
What might be considered an 'emergency situation' is not defined in the Retail Legislation but there are arguments that a global pandemic could be classified as an emergency situation.
Certainly it is clear that where a shopping centre is required by a public authority to close the exception would apply.
Where a landlord chooses to the whole or part of a shopping centre is a little more problematic and would require consideration of the situation at the time the decision is to be made as the Covid-19 situation is changing very quickly.
What to do now
Landlords should follow and monitor all public health announcements and carefully consider all aspects before making any decision to close any part or the whole of a shopping centre. Landlords should weigh up the prospect of the infection of customers, tenants and staff in the Centre against the business disruption.
The statutory powers of the Federal Government, as well as the State and Territory Governments, will be broad in relation to the COVID-19 outbreak. These powers will include controlling access to large places of gathering (which could include shopping centres) and other statutory evacuation orders and/or ongoing restriction of movement orders. As tenants, you should be aware of the possibility of forced closures and/or openings expected to impact centres and your premises.
Your lease will likely contain a clause that requires you, as the tenant, to comply with all laws and requirements of authorities from time to time that relate to, or affect the premises. In the event that the landlord's premises are the subject of a statutory evacuation order and/or an ongoing restriction of movement order, you (and the landlord) are obliged to comply with that order.
Should a relevant authority issue such an order in respect of your landlord's centre, it is our view that the order, and the subsequent temporary closure of the centre would not:
- result in the landlord breaching the lease by failing to allow the tenant the benefit of quiet enjoyment;
- result in the landlord breaching the lease by failing to operate the centre and to provide essential services;
- result in the tenant breaching the lease by failing to continue to trade;
- entitle the tenant to rent abatement for the period of the closure;
- give rise to a claim by the tenant for compensation under the retail legislation (as complying with such a statutory order would likely fall within the relevant emergency carve out clause in your state's relevant retail legislation); or
- result in the frustration of the lease.
Accordingly, by complying with a statutory order of closure or evacuation, neither party to the lease could be considered in breach of its respective obligations.
As you will be aware, on 24 March 2020, the Prime Minister announced that food courts in shopping centres will be closed nation-wide. We consider that the above will apply in relation to such an order.
You should also be aware that this is most likely not the last of the Federal Government's announcements in relation to shopping centres. The Prime Minister indicated that landlord and tenant issues will be considered in the National Cabinet meeting on 25 March 2020.
A landlord may voluntarily decide to close all or part of a centre in response to the risk of COVID-19 spreading, without the centre being subject to a statutory order. This may occur because the landlord is mindful of the spread, or is aware of a high number of infected persons in a particular tenancy, or in the centre generally.
The landlord's action might be in breach of the covenant of quiet enjoyment. It will be a question of fact and degree.
If you are party to a retail lease, your relevant state's retail legislation will likely provide that you will be compensated for interference caused by your landlord. Interference includes, for example, substantially inhibiting your access to the premises. This may, however, be subject to some exceptions.
You should seek advice on the particular rent abatement clause in your lease. Your lease may contain a damage and destruction clause. It may provide for the lessee to receive a rent abatement if the centre or the premises are damaged or destroyed so that the premises cannot be used or are inaccessible. We do not think that this clause would apply in the various scenarios so far contemplated. Even if a centre was the source of a COVID-19 outbreak, neither the centre nor the premises can be considered damaged or destroyed.
If you simply cease trading because of a fear of COVID-19, it is our view that you would be in breach of your relevant trading obligations under the lease. Of course, if your lease is a retail shop lease it would be subject to any provisions in the relevant Retail Legislation to the contrary including any trading obligations.
In circumstances where your landlord continues to comply with its duties, for example, regularly cleaning the common areas and servicing facilities, would make it difficult for a tenant (if any) to argue that the contraction of the virus by staff members or members of the public known to have frequented the centre, or the risk of the contraction of the virus, excuses the tenant from complying with its trading obligations under the lease.
If you did notify the landlord of the contraction of the virus by one or more of its staff members and your consequential decision to cease trading, it would be a commercial/public relations matter for the landlord as to whether it wishes to enforce your trading obligations.
Please also keep in mind that as an employer, you have a primary duty to ensure, as far as reasonably practicable, the health and safety of your employees and all persons in your workplace. See our issues in the workplace section for more.
There is no common law doctrine of force majeure. It is instead the subject of a contractual agreement between the parties and comes down to matters of interpretation. The ability to rely upon the doctrine of force majeure will depend upon whether your particular lease has a relevant force majeure clause. Such clauses are however, rarely included in standard commercial leases.
It is a high hurdle for an aggrieved party to demonstrate that a contract has been frustrated. Frustration brings a contract to an end in circumstances where an intervening, post-contractual event has occurred, through no fault of any party, by which performance of the contract has become impossible, or radically changed. Temporary change such as a short term closure of premises would ordinarily not amount to frustration.
We appreciate that at the time a statutory order is issued, it may not be known when the centre can be re-opened. We would expect it would only be a matter of days or weeks. In these circumstances, we do not consider this will result in frustration of the lease. While it seems unlikely that a centre would be closed for an extended period of time, it is possible that an extended closure might result in the frustration of the leases. This would need to be considered further.
Where a statutory order prohibits trading from a leased premises, it is our view that it would not be unconscionable conduct for a landlord to seek to recover rent from you for a period of time in which you have been unable to trade (we consider this to be the case in relation to both retail legislation, and the Australian Consumer Law).
We say this because, while it may be unfair for you to have to pay rent when you are prevented by the statutory order from earning revenue, the landlord is also subject to that order and would likely be ready to perform its part of the bargain. Requiring rent to be paid is the landlord's contractual right, and it is difficult to see what the alleged loss would be, considering you as the tenant were already obliged to pay rent by the terms of the lease.
Be aware of the other side. It could be asserted that it was unconscionable conduct for a tenant to refuse to pay the landlord any rent, not because of any wrongful conduct of the landlord, but because a government order has prevented it from trading.
We expect that coverage under existing arrangements will be called into question. In particular, we expect that disputes will arise around whether a pandemic is an insurable event, or whether a loss period is subject to a blackout while the event occurred. You will need to consider whether your particular insurance policy covers losses suffered during a disease outbreak. Be aware that it is common for policies to exclude losses caused directly or indirectly by a disease outbreak. However, your insurance policy may provide for business interruption coverage, which protects businesses against losses incurred as a result of disruptions to their operations. These policies, however, typically require direct physical loss of, or damage to, insured property to trigger coverage. You should review your insurance policy carefully.
Last updated: 14 April 2020
National Cabinet released a Mandatory Code of Conduct for commercial leasing (the Code) on 7 April. The Code provides that during the COVID-19 pandemic, landlords must not terminate leases or draw on security if a tenant fails to pay rent; landlords must reduce rent proportionately to the reduction in the tenant’s turnover, through waivers or deferrals of rent (where waivers of rent must account for at least 50% of the total reduction in turnover, and re-payment of rent deferrals must be amortised over the greater of the balance of the lease term or 24 months); and there will be a freeze on rent increases. The Code raises many questions for the industry.
IT IS UNCLEAR
The Code expressly applies to tenants of commercial, retail and industrial premises that are eligible for the Federal Government's JobKeeper program and have a turnover of $50 million or less.
The Code also states that its principles should apply in spirit to all leasing arrangements for affected businesses, having fair regard to the size and financial structure of those businesses. We expect a number of tenants will seek relief in line with the Code even if they are not strictly eligible.
There is a push by the Property Council of Australia for the state and territory governments to include, among other things, exemptions for small owners from the Code.
IT IS UNCLEAR
The Code will be given effect through relevant state and territory legislation, or regulation as appropriate, from a date after 3 April 2020.
We are waiting for clear guidance from the states and territories as to their proposed timing. However, we anticipate that the legislation is likely to apply retrospectively from the date of the Code.
IT IS UNCLEAR
Arrangements under the Code will last for the period during which the JobSeeker program remains operational and must take into account a subsequent reasonable recovery period.
The Code does not provide any guidance as to what constitutes a 'reasonable recovery period', so this will have to be agreed on a case-by-case basis. For instance, this could be an agreed number of weeks or months after the relevant state of emergency has been lifted, achievement of a defined revenue or a reference to foot traffic at the premises.
IT IS UNCLEAR
The Code specifies that landlords must offer tenants proportionate reductions in rent, based on the reduction in the tenant's trade. The Code does not provide guidance as to how a reduction in trade should be measured, so this will need to be agreed by the parties.
The concept of a reduction in trade is perhaps easier to understand and measure in a retail environment, where a tenant may be prevented from trading from particular premises due to the government-imposed shutdown or the partial or full closure of a shopping centre. This concept may be more difficult to measure for commercial or industrial leases that are not dependent on foot traffic to drive revenue. Given this, care will need to be taken to agree mechanisms that are both transparent and fair, and reflect the underlying principle that the Code is seeking to address the impact of the COVID-19 pandemic.
While the Code requires landlords to offer reductions in rent based on decreases in trade, it also requires arrangements to have specific regard to the impact of COVID-19 on the tenant's expenses and profitability. While expenses are discussed below, the Code provides no guidance as to how tenants should be compensated for falls in profitability. This will need to be considered on a case-by-case basis but, in most cases, can, hopefully, be factored into the agreed rent reduction.
The Code specifies that a landlord must pass on to the tenant any reduction in statutory charges that it receives (such as land tax and council rates) proportionate to the way in which outgoings are calculated under the relevant lease.
The Code also specifies that landlords should, where appropriate, seek to waive recovery of any other expense payable by a tenant during any period where the tenant is not able to trade and that landlords reserve the right to reduce services as required.
FOR ANY REASON ALLOWED UNDER A LEASE, OTHER THAN NON-PAYMENT OF RENT
The Code specifies that landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (and the reasonable subsequent recovery period discussed above). This includes non-payment of any re-negotiated rent.
The Code also specifies that tenants must remain committed to the terms of their lease, subject to any amendments negotiated under the Code, and any material failure to abide by substantive terms of a lease will forfeit any protections provided to the tenant under the Code. This means that landlords can still terminate leases for a breach (other than non-payment of rent), provided it is a material breach of a substantive term. It will therefore be important to overlay these concepts of 'material' and 'substantive' over the existing default and termination provisions in the relevant lease, when considering whether to take steps to terminate the lease.
While the Code prevents the landlord from drawing on security for non-payment of rent, there is no restriction on drawing on security for other breaches of the lease by the tenant.
The Code specifies that a tenant should be provided with an opportunity to extend its lease for an equivalent period of the rent waiver and/or deferral period. Given the uncertainty regarding how long the rent waiver and/or deferral period will last (and requirements in retail leases legislation), parties will need to be careful how they structure these arrangements.
IT IS UNCLEAR
The Code requires the reductions in rent to be linked to a tenant's fall in revenue and, given that revenue is likely to change over time, the likelihood is that any fixed arrangement would need to be revisited, if revenue falls further or improves.
The need to revisit agreed arrangements may be avoided by structuring them so that the quantum of rent relief is calculated on a rolling basis that takes into account the tenant's actual revenue at any given time.
YES AND NO
The Code specifies that landlords agree to a freeze on rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period.
There is no equivalent freeze on rent reductions, which may be the outcome of market rent reviews that fall during the operation of the Code. To avoid this, landlords may seek to agree to defer all rent reviews, including market reviews, until application of the Code ends.
Following the advice of Prime Minister Scott Morrison on 29 March, many parties have already entered into rent relief arrangements. If the terms of the arrangements comply with the Code, those arrangements may remain on foot. However, if the arrangements do not comply with the Code, the parties will need to enter into new compliant arrangements.
There is, however, a push from the Property Council of Australia for the state and territory governments to recognise arrangements that have already been put in place.
IT IS UNCLEAR
To quote the Code itself, 'the Code has been developed to enable both a consistent national approach and timely, efficient application'.
It is currently unclear whether the states and territories will pass legislation that has the effect of simply giving the Code legislative effect (ie adopting the Code as is), or whether they will seek to clarify through legislation some of the uncertainties created by the Code.
On 22 March 2020 the Federal Government announced temporary relief measures to support businesses through COVID-19. Parliament has since rapidly passed the Coronavirus Economic Response Package Omnibus Bill 2020, reflecting the relief measures proposed.
A description of the relief measures as they relate to insolvency law and practice is covered in our Q&As below. In essence, the measures:
- provide directors with temporary relief from insolvent trading liability (but this new COVID-19 'safe harbour' is not a complete answer to those issues);
- increase the thresholds for commencing winding up and bankruptcy proceedings; and
- provide the Treasurer with broad powers to relieve companies of their obligations under the Corporations Act 2001 (Cth) to deal with unforeseen COVID-19 circumstances.
The changes to existing laws are temporary, and at this stage, will apply for six months.
As of the 23 March 2020, the Commonwealth Government has introduced a new insolvent trading 'safe harbour' comprising a six-month moratorium on insolvent trading liability in respect of debts incurred "in the ordinary course of the company's business" (the COVID Safe Harbour).
The COVID Safe Harbour will provide useful immediate relief for companies and their directors, particularly those who need time to assess the company's position before developing a turnaround plan or pursuing an insolvency administration if that becomes necessary.
However, most distressed businesses will still need to work quickly to prepare a detailed survival and turnaround plan that will encompass some or all of the well-established techniques used by insolvency professionals. They will also need to monitor the implementation of the turnaround plan and ensure that it is updated and revisited as the COVID-19 crisis evolves. In these circumstances, it would make sense for businesses to prepare a plan which meets many of the requirements of the existing 2017 Safe Harbour provisions.
The current minimum threshold for creditors to issue a statutory demand on a company will be increased from $2,000 to $20,000 for the next six months. Helpfully, a company will also have six months to respond to a statutory demand, a significant increase from the current 21 day timeframe. This development will ensure that companies have the breathing space they need to deal with their financial issues without the immediate threat and distraction of winding up proceedings being commenced by aggressive creditors.
The Treasurer will be given a temporary instrument-making power to amend provisions of the Corporations Act, to provide relief from, or modify, obligations under the Act. The power is intended to allow the Treasurer the flexibility to deal quickly with unforeseen circumstances arising from COVID-19, without the need for legislation with its attendant delay. The instrument-making power will apply for six months, and any instrument made under this power will apply for six months from the date it is made.
The minimum debt to initiate bankruptcy proceedings against an individual will temporarily be increased from $5,000 to $20,000. The time to respond to a bankruptcy notice will be increased from 21 days to six months.
Last updated: 26 March 2020
Ensuring compliance with environmental obligations is becoming ever more challenging in the face of escalating social distancing and shutdown requirements. Licence conditions and statutory clean-up notices often require regular on-the-ground testing, lab analysis and time-based reporting that may be hindered or delayed over the coming months, posing compliance risks for businesses. Approvals for urgent works and changes to waste streams or discharges may be difficult to obtain where fast-track approval pathways are unavailable and while regulator resources are stretched.
So far, regulator responses to COVID-19 and the willingness of regulators to take a pragmatic, risk-based approach to enforcement of environmental obligations have varied, with some regulators making clear statements that continued compliance is expected, while others foreshadow a more pragmatic approach.
In this context, it is critical to understand the options available to support continued compliance, particularly in circumstances where many environmental offences are strict liability.
GENERALLY SPEAKING, NO
Planning and environmental laws and approval conditions are typically framed as absolute compliance requirements linked to quantitative limits, targets or timeframes. These may include deadlines for reporting requirements, maximum allowable emissions to air or water, or obligations to cease or modify operations where environmental outcomes are not met. Associated offence provisions in legislation for failing to comply with these requirements (eg breach of conditions, or pollution of land or water) tend to be strict liability offences, with a business exposed to enforcement action for non-compliance where a condition is breached, an unauthorised discharge occurs or environmental harm is caused.
Unless the relevant legislation contains an applicable exemption, or one is granted by the regulator, the COVID-19 pandemic and associated interruptions to business operations are not, of themselves, justifications to cease or defer compliance with environmental requirements. If a business causes environmental harm or breaches an approval condition, it may be exposed to regulatory action notwithstanding the circumstances that led to the breach.
Increasingly, environmental regimes across Australia are moving towards harm prevention models that require businesses to take all reasonably practicable steps to minimise risks of harm to human health and the environment. The question of what steps are 'reasonably practicable' for a business to take during a time of significant business disruption should be front of mind for businesses. The anticipated decrease in available resources and restrictions on site access during COVID-19 might impede your ability to take the steps usually available to mitigate environmental impacts. In contrast to strict liability-type offences, businesses subject to these types of duties will need to carefully consider, and document, how they plan to minimise environmental and human health impacts now, and as their operations continue to evolve over the coming months.
As discussed below, paying close attention to the guidance being issued by regulators will be key to assessing compliance risks for your business during the COVID-19 outbreak. It is promising that some regulators are signalling plans to relax enforcement activity, in recognition of the significant difficulties businesses may have meeting their environmental obligations and approval requirements over the coming months.
Finally, actions to maintain compliance with environmental requirements should not be taken at the expense of workforce health and safety. The duty of care to workers is paramount, and businesses cannot put their workers at risk even to meet other legal obligations. Duties of employers are discussed further in the 'Issues in the Workplace' section of this COVID-19 update.
Regulators responsible for overseeing compliance with environmental, planning and resources regimes are beginning to issue guidance on their approach to administration, approvals and enforcement during the COVID-19 pandemic. So far, we are seeing diverse approaches, ranging from suggestions that compliance requirements may be relaxed, through to clear statements that ongoing compliance is expected. There are three broad approaches emerging:
- Some regulators (eg the NSW, Victorian and Tasmanian EPAs and the federal Department of Agriculture, Water and Environment) have made it clear that compliance with licence conditions will still be expected.
- Some regulators (eg the Queensland Department of Environment and Science, the NSW Department of Planning, Industry and Environment, the NSW Resources Regulator, the Western Australian Department of Water and Environmental Regulation, the Northern Territory EPA and WorkSafe Tasmania) have indicated that a flexible and pragmatic approach will be taken to enforcement and compliance action.
- Some regulators (eg the Western Australian and South Australian EPAs) have not yet taken a firm position.
Some regulators have also encouraged businesses to self-report any actual or anticipated failures to comply with the terms of their environmental or planning approvals at an early stage. For example, the Queensland Department of Environment and Science has urged holders of environmental authorisations to self-report actual or anticipated non-compliances because of conflicting requirements imposed by the Chief Health Officer due to COVID-19. Doing so does not provide statutory relief from compliance action, but the Department has indicated that it will not take enforcement action where an authority holder can demonstrate that the non-compliance is because of a direction of the Chief Health Officer and they will otherwise take all reasonable and practicable measures to prevent environmental impacts. A number of state environmental regulators have also urged businesses to put in place business continuity plans to ensure, as far as possible, that they meet their environmental obligations.
We expect regulators will continue to update their advice as the impact of COVID-19 on key industries keeps evolving. It will be important for businesses to check regularly for updates on the latest advice from regulators concerning their approach to COVID-19.
Where it will be difficult to comply with existing requirements under licences or approvals as a result of COVID-19, one option is to seek a variation to conditions. COVID-19 may also require a ramp-up in production for some businesses, with associated increases in emissions that require variations to existing approvals or secondary consents / separate approvals.
In most cases, the timeframes for the grant of new licences and approvals or variations will not be short enough to avoid the risk of a significant period of non-compliance. However, some states' statutory regimes do provide fast-tracked pathways for new approvals for 'emergency works', and streamlined variations processes for urgent changes. For example:
- Queensland's Department of Environment and Science can grant a temporary emissions licence to permit the temporary relaxation or modification of conditions of an environmental authority. While this power has not previously been employed in the context of a health emergency, the Department has issued these licences in response to weather emergencies such as unanticipated extreme flooding.
- The EPAs in Victoria, South Australia and Tasmania can issue emergency authorisations in place of standard approvals (including for the discharge or storage of waste) in specified circumstances. Businesses are encouraged to contact the EPA to discuss these approvals as early as possible, and they will be assessed on a case-by-case basis.
Some states also have powers to suspend regulatory requirements or grant exemptions. For example:
- The NSW EPA can grant exemptions to provisions of the Protection of the Environment Operations Act 1997 (NSW) or the regulations in the case of an emergency.
- In WA, the Department of Water and Environmental Regulation can grant exemptions to emissions limits during a temporary emergency.
- The NT EPA allows proponents to enter into 'compliance plans' with the EPA. These provide for staged implementation of improvements to operations where a proponent is unable to comply with regulations or an environmental protection objective under the Waste Management and Pollution Control Act 1998 (NT).
Where there are no existing statutory powers that enable relaxation of environmental or planning requirements, legislative amendments will be required for states wanting to provide some relief to businesses. For example, the NSW Government has passed emergency legislation under which the Minister for Planning has made orders to relax delivery hours restrictions for supermarkets; to allow building work to take place on Saturdays, Sundays and public holidays, including for infrastructure projects; to allow certain premises to be used for the preparation of food or beverages to be consumed off the premises; and for certain essential types of developments, such as COVID-19 clinics, to be carried out without any form of planning approval.
Businesses with complex operations and potential environmental impacts are used to anticipating and responding to regulatory changes imposed by multiple regulators at state, territory and federal level. Usually, there is a relatively long lead time between reforms being mooted and implemented, giving businesses time to digest, plan for and adapt to reforms in advance.
We can expect some reform work in its early stages (eg inquiries and public consultation) to be deferred over the coming months. However, some governments appear to be pushing ahead with fairly significant reforms, such as the proposed amendments to the Environmental Protection Act 1986 (WA) and the NSW Government's proposed changes to the infrastructure contributions system.
A number of industry groups have contacted governments, requesting regulatory relief and delays to reforms that could impact their sector. However, businesses should be aware that reforms that have already been legislated are usually subject to commencement deadlines in amending statutes, which cannot be shifted without further legislative amendments passed by Parliament.
For example, significant reforms to Victoria's environmental protection regime were set to commence from July 2020, and no later than December 2020. However, commencement of the reforms has now been delayed by at least twelve months. The COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic) passed into law on 24 April 2020, introducing a suite of emergency measures during the COVID-19 pandemic, including deferring the mandatory commencement of all provisions of the new Environment Protection Amendment Act 2018 (Vic) which have not yet come into operation, and changing the 'long-stop- date' for commencement of the reforms from 1 December 2020 to 1 December 2021. It does not make any changes to the content of the new laws.
Businesses should continue to monitor for any announcements regarding whether reforms which could impact their operations will proceed during COVID-19, and what regulator attitudes will be to enforcing compliance with new laws.
COVID-19 is presenting new daily challenges, including reducing site-based workforces and forcing businesses to focus on business-critical activities only. With resources diverted and site access restricted, we expect managing regulatory compliance to pose a further challenge for our clients. We suggest taking these steps now to stay on top of your obligations.
- Audit your business's compliance obligations – what are your key approval conditions? Do you have any upcoming reporting deadlines?
- Identify specific compliance obligations that require external consultants / auditors / laboratory analysis to facilitate compliance. Reach out to those contacts now, to identify anticipated interruptions or delays in response times.
- Consider if compliance can be achieved another way: eg remote monitoring using equipment, rather than attendance on site by your team.
- Consider whether it is wise to contact key regulators for a discussion about your business-critical activities and anticipated challenges.
- Incorporate compliance work into your workforce planning. Can key staff / resources be reallocated to focus on higher-risk obligations or those linked to your business-critical activities?
If, having done the above, there is still a risk that you might not be able to comply with approval requirements or environmental laws in the coming months, organisations might look to:
- identify (and document) what reasonable steps you consider can or cannot be implemented to mitigate any harm that may occur as a result of not being able to achieve compliance; and
- consider whether it is appropriate to discuss this with the regulator.
The NSW EPA has specifically called for businesses to notify it if they anticipate any significant risk to their ability to comply with their licence. This suggests that the EPA is willing to take a flexible approach to compliance where businesses are proactive in identifying and self-reporting potential non-compliances. In our experience, self-reporting is likely to positively influence the exercise of the regulator's discretion whether to take regulatory action in response to a non-compliance. It also creates an opportunity to discuss potential exemptions or variations to obligations, where the regulator has power to do this.
A number of industry associations have written to regulators, calling for a flexible approach to compliance during the COVID-19 crisis. For example, the National Waste and Recycling Industry Council has urged state and local governments to be more flexible on certain facility licence conditions, so that social distancing to protect staff can be maintained and collection-time curfews can be lifted.
We are also here to provide support if you are facing potential compliance issues, and would be happy to assist you to write to regulators, advocating for a pragmatic approach to enforcement; to review your compliance and/or regulator engagement strategies; or provide advice on your specific statutory and licence obligations, and any avenues to have these varied, if necessary.
Last updated: 26 March 2020
Like all industries, the superannuation industry is facing some immense challenges in light of the rapidly developing COVID-19 pandemic. Key among those challenges will be dealing with the fallout – both immediate as well as longer term – of the Government's announced changes to superannuation settings, as part of its economic response to the pandemic. Virtually all aspects of a superannuation fund's operations will be impacted in some form or another, and we can also expect that the regulatory reform agenda will shift in light of the current crisis.
For more information, please see our latest insight on the impacts of COVID on superannuation.
The Coronavirus Economic Response Package Omnibus Bill 2020 has been passed and will amend the SIS Regulations to allow members to access up to $20,000 of their superannuation savings across the 2019-20 and 2020-21 financial years. Only one application for up to $10,000 can be made per financial year.
To apply, members must meet certain eligibility criteria, which include that they are unemployed, are receiving certain social security benefits, or on or after 1 January 2020, have been made redundant or had their working hours reduced by 20% or more. Members who are sole traders whose business has been suspended or has suffered a reduction in turnover of 20% or more can also apply. Members must make applications direct to the ATO. Once the ATO has made a determination in relation to the member's application, trustees will be required to pay benefits as soon as practicable, without requiring any additional application from members.
This extended early release option will be available for a period of six months following the amendments coming into effect (currently expected to be mid-April), although the Government may extend the measure beyond this timeframe, given the uncertainty as to how COVID-19 will progress.
Reduction in minimum drawdown rates for account-based pensions
In a bid to help pension and annuity account balances to recover from the economic shock stemming from the crisis, the minimum drawdown rates for retirees will be halved for the 2019-20 and 2020-21 income years, meaning that pensioners will be entitled to keep more money in the superannuation environment if they wish to do so.
Social security deeming rates
A reduction to the social security deeming rates has also been announced in recognition of the impact that a low interest rate environment has on an individual's expected savings income. From 1 May 2020, the upper deeming rate will be 2.25% and the lower deeming rate will be 0.25%, which the Government expects will mean an average increase of $105 to the Age Pension.
- Be ready for queries: The early release measure has been widely publicised in the media and forms a crucial part of the Government's financial assistance response. We expect the announcement will prompt a significant number of member enquires.
- Prepare communications: Fund websites should be updated as soon as possible with information about the new rules, its implications and links to the myGov website in preparation for when the changes take effect, which is expected to be mid-April. Information should also be published about the reduction in minimum drawdown rates where relevant, so that members can make a choice as to whether they wish to make changes to their drawdown amounts.
- Establish payment processes: Trustees should consider how they will confirm member identities and bank account details before payments are made. Paying benefits by way of cheque should be the option of last resort in the current climate as this typically requires members to physically visit a bank branch.
- Consider financial advice: There will be an important role for financial advice in supporting members who are considering whether to access their superannuation early (and take other steps such as moving investment options). Trustees should give thought to what steps they can take in either providing that advice (where they hold the appropriate authorisations to do so and have appropriate protections in place) or facilitating members' access to advice.
- Remember low balances: A watching brief should be kept on a possible increase in the number of low-balance accounts arising as a consequence of market movements or withdrawals. Processes for transferring accounts to the ATO and applying fee caps under the PYS legislation should be robust.
Funds will likely be able to pause or slow their preparations for a large number of upcoming regulatory changes.
APRA and ASIC have stated that many of their regulatory reforms will be suspended, but funds will need to await further announcements on some specifics.
The reform agenda previously slated to go before Parliament in the coming months will also be suspended. The Government has not made an official announcement on this – but in practice it will be on hold until at least Parliament's next sitting day, which has been postponed to 11 August 2020. This includes Treasury's Exposure Draft Bills to implement the last of the Financial Services Royal Commission Recommendations (a number of which had been proposed to commence on 1 July 2020).
Overall, funds can expect that:
- Supervision activities will be refocused. The regulators will switch their supervision focus to managing the response to COVID-19 and other serious or time-critical issues. ASIC regards outstanding customer remediation as being in this category and will work with businesses to accelerate payments. We expect the regulators may temporarily cut funds some slack on other existing or pending investigations (but funds cannot assume the issues will go away in the longer term).
- New regulatory measures may be introduced to respond to COVID-19. We expect the regulators will be actively considering whether any COVID-19 specific measures are required for funds.
- AFCA will consider COVID-19 circumstances when dealing with complaints. AFCA has said it will take into account the unprecedented circumstances (including if firms are not in a position to quickly act on requests for information). It has also said it will fast-track COVID-19 related complaints. Funds will need to be prepared to prioritise those complaints.
ASIC has said it may provide relief or waivers in response to difficulties faced by funds in the current environment. We expect APRA to adopt a similar approach. We recommend that funds be proactive in seeking relief where needed.
Last updated: 26 March 2020
COVID-19 is presenting developers, builders, investors and tenants with a multitude of issues to do with existing and proposed developments. In particular, these stakeholders are having to navigate issues associated with how COVID-19 could delay projects and who should bear the cost of those delays. While, to date, construction sites remain open, there is also a concern as to what could happen if construction sites were closed. We explore what rights and obligations developers, builders, investors and tenants will have in those scenarios.
Queensland has enacted legislation that gives the Minister for Planning the ability to extend or suspend timeframes under the planning legislation, including timeframes in the planning approval process. While no other states have yet followed suit, we expect varying degrees of delay across all jurisdictions – at least in the short to medium term. Delays in the planning approval assessment and appeal processes will occur, as councils and judicial bodies set up the required infrastructure and capacity for remote assessment and determination of planning approval applications. These impacts may increase should stricter lockdown measures be imposed at a state or federal level.
This will turn on the terms of your development agreement.
Your development agreement will allocate responsibility (usually to the developer) for obtaining and complying with conditions of planning approvals. This may extend to having positive obligations to defend or commence an appeal regarding the planning approval – eg where conditions are not satisfactory.
The obligation to obtain planning approvals will often be framed as a condition precedent. It will be important to identify whether there is a fixed date by which the planning approval must beobtained, or whether this date moves for extensions of time. If the date does move, then it will be important to identify whether COVID-19-type events fall within the scope of the extension regime.
Whether or not the builder is entitled to claim an extension of time will usually depend upon the terms of the force majeure definition in the particular construction contract.
Some contracts contain a force majeure clause that defines the concept of force majeure by reference to a specific list of occurrences. If such a clause does not refer expressly to disease, pandemic, epidemic or actions by government (or something similar), then it may be difficult for the builder to claim force majeure as a result of COVID-19-related disruption. We are nevertheless seeing some creative arguments that seek to rely upon other concepts such as 'natural disaster' referred to in force majeure clauses. However, such arguments – subject to the terms of the particular contract – are unlikely to succeed.
Other contracts define the concept of force majeure more generally, without limiting it to a specific list. For example, force majeure might be defined as an event or circumstance outside of a party's control; that could not have reasonably been foreseen; and, having occurred, the effect of it could not be avoided or prevented. Definitions of that kind are more likely to be satisfied as a result of COVID-19.
It is important to remember that even if the definition of force majeure is satisfied, there will likely be other requirements that the builder also has to meet, such as notice within the timeframe required by the contract and an obligation to mitigate the effect of force majeure to the extent possible.
The construction contract and development agreement or agreement for lease are not usually 'back to back' in relation to all risks. The particular clauses in each agreement will need to be analysed – you can't assume that the risk allocation will be identical under all project documents. Therefore, there may be circumstances where the builder can seek relief as a result of COVID-19 from the developer that the developer or landlord cannot seek relief from upstream.
There may also be a number of other gap risks that might arise if the disruption to the builder's ability to progress the project is prolonged where the builder cannot claim force majeure or other relief.
For example, the builder might reach the cap on liquidated damages under the construction contract. The developer may also have to deal with potential insolvency of the builder. These circumstances are also likely to increase the prospect of Security of Payment Act claims.
The Federal Government has broad powers under the Biosecurity Act 2015 (Cth). However, orders requiring work to cease will be issued by the states and territories.
For example, in NSW under the Public Health Act 2010 (NSW),the Health Minister can take any action that they deem necessary to deal with the risk to public health. The Chief Health Officer in Victoria has similar powers under the Public Health and Wellbeing Act 2008 (Vic).
Depending upon how the situation with COVID-19 develops, this could conceivably extend to ordering that more work cease than has already. However, to date the NSW Government has issued public statements in support of construction work continuing on major projects. While the approach has been largely co-ordinated to date, it is possible that not all states and territories will adopt the same position.
It will depend upon the terms of the particular contract (see the question above regarding whether the builder is entitled to claim an extension of time due to disruption caused by COVID-19). If a shutdown occurs, there is a risk the builder will be entitled to an extension of time but the developer will not be entitled to an extension under its development agreement or agreement for lease.
The existing legislation does not provide for compensation in the event that the public health powers are exercised.
Many construction contracts also contain 'Change in Law' provisions. Whether or not there is an entitlement for the builder or developer to claim relief relying on that clause will depend upon the terms of that clause.
Many change in law clauses require there to be a change in existing legislation or the enactment of new legislation for a change in law to occur. However, the orders issued to date in NSW and Victoria have not involved the enactment of new legislation but the issuance of orders or directions under existing legislation, which is unlikely to trigger a change in law clause of that kind. Clauses that are broader in scope, and extend to concepts such as orders and government directives, are more likely to be satisfied.
The builder (or the developer upstream) might be able to claim that the contract has been frustrated. Frustration is a common law doctrine. If the contract has been frustrated, the parties will be discharged from future performance from the point in time at which it was frustrated. However, accrued rights and obligations will remain enforceable (such as the dispute resolution provisions, or the obligation to pay a milestone payment for work already performed).
The doctrine of frustration has a very narrow scope. Frustration will not arise where there has been mere hardship – even if severe – where the event in question has been foreseen or where the change is only temporary or transient. However, with increasingly restrictive government measures being imposed, the possibility of a successful claim in frustration has increased.
A contract works insurance policy is likely to be in place on most major projects. Some of these policies are combined with 'delay in start-up' insurance. While the triggering event for cover under those policies is usually the occurrence of damage, some policies contain extensions that cover loss that arises due to denial of access to the project site. In the event that a complete lock-down is ordered, it is possible that cover will be available under policies of that kind for the loss arising as a result of the delay.
Claims by builders as a result of supply chain disruption might also be covered under contingent business interruption policies.
Whether a tenant is entitled to claim liquidated damages from the landlord or developer depends on the terms of the agreement for lease.
Often, a tenant will be entitled to liquidated damages if the landlord or developer does not achieve practical completion by a specified date. If the landlord or developer is delayed as a result of COVID-19-related disruption to such an extent that it cannot achieve practical completion by that date, the landlord or developer may be required to pay the tenant liquidated damages. This will be subject to the considerations regarding whether the landlord or developer is entitled to an extension of time (refer to the question above regarding whether a builder is entitled to an extension of time).
Landlords and developers should be conscious that tenants may suffer significant costs and losses if the landlord or developer does not achieve practical completion by the specified date. For instance, a tenant may be required to exercise an option under its existing lease or find alternative accommodation. The tenant would usually seek to recover these significant losses from the landlord or developer.
Agreements for lease sometimes include a 'look-forward' test under which a tenant can require an independent certifier to assess whether the project has a reasonable prospect of achieving practical completion by a specified date. If it is determined that there is not a reasonable prospect, a tenant may be entitled to trigger an option for a further term under its existing lease at the developer's or landlord's cost.
During the COVID-19 pandemic, it may be very difficult for a certifier to make a sensible determination. The longer the COVID-19 pandemic lasts, the more likely we think it is that 'look-forward' regimes could be triggered. Apart from tenant delays, look-forward dates are usually fixed dates that will not move for COVID-19 delays.
LESS SO THAN OTHER DEVELOPMENTS ARRANGEMENTS
Unlike other types of development agreements, the developer under a fund through agreement is not usually required to pay liquidated damages if it does not achieve practical completion by the date for practical completion. Usually, the coupon payments simply continue (or, in some circumstances, the coupon payments may slightly increase).
However, depending on the contingency in the developer's program, delays from COVID-19 could lead to the developer being at risk of not achieving practical completion by a sunset date, which can often lead to termination. This will be subject to the considerations of whether the developer is entitled to an extension of time (refer to the question above regarding whether a builder is entitled to an extension of time).
Last updated: 19 May 2020
On 29 March 2020 the Federal Treasurer announced major changes to Australia's foreign investment approval (FIRB) regime to address risks arising from the COVID-19 pandemic. The changes, which are temporary, substantially expand the scope of transactions requiring FIRB approval and significantly lengthen FIRB review periods for applications. The changes have been implemented via amendments to the FIRB regulations that were released on 17 April 2020 (but which took effect from 29 March 2020) and through administrative means. For all foreign investors, as well as many entities operating in the real estate space more generally, understanding their impact will be critical – especially throughout the next few months.
There is now more scrutiny than ever on foreign investment in Australia in light of concerns that the negative impact of COVID-19 on Australian businesses will likely result in increased distressed asset sales to foreign purchasers at prices that are below the usual FIRB monetary screening thresholds. Allens is uniquely placed to guide clients through the FIRB process given our direct involvement in consultations with FIRB regarding these latest changes, as well as our expertise working closely with clients across a range of sectors and practice groups, including M&A, private equity and funds. In particular, M&A Partner Wendy Rae's role as Deputy Chair of the Foreign Investment Committee of the Business Section of the Law Council of Australia ensures that Allens is at the forefront of these FIRB developments.
The changes are as follows.
- Effective from 10.30pm AEDT on 29 March 2020, all monetary screening thresholds under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the Act) have been reduced to $0. This applies to all foreign persons subject to the Act irrespective of whether they are a private foreign investor or a foreign government investor, and irrespective of their country of origin.
- FIRB review periods for new and existing applications under the Act are being extended to up to six months. Priority will be given to processing applications for investments that protect and support Australian businesses and jobs. Priority will also be given to routine transactions such as entry into new lease agreements for developed commercial land given the potential link to protecting and supporting Australian businesses. In addition the Federal Government has stated it is committed to meeting commercial deadlines wherever possible. FIRB is triaging cases using a risk-based approach and additional staff have been brought on to manage the workload.
The reduced $0 threshold was implemented via the Foreign Acquisitions and Takeovers Amendment (Threshold Test) Regulations 2020 (Cth) (the Amending Regulations) which amend the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) (the Regulations). The Amending Regulations were released on 17 April 2020 but take effect from 10.30pm AEDT on 29 March 2020. The Amending Regulations do not contain a sunset date, meaning the $0 threshold will remain in place unless and until repealed by further legislation. However, the Federal Government has indicated that the $0 threshold is a temporary measure and will remain in place for the duration of the COVID-19 crisis.
The new $0 monetary screening threshold is intended to address concerns that the negative impact of COVID-19 on Australian businesses will likely result in increased distressed asset sales to foreign purchasers at prices that are below the usual FIRB monetary screening thresholds.
The extensions to the FIRB review periods on applications are intended to give FIRB and the Treasurer sufficient time to screen applications. This is an administrative change and has not involved any changes to the Act or Regulations. It is expected that FIRB will revert to its usual processing time frames at the same time the $0 threshold is repealed.
FIRB released a guidance note on the changes – Guidance Note 53 – on 24 April 2020 and updated it on 18 May 2020. The guidance note also includes FIRB's position on pre-existing issues – in relation to extensions of property leases and the establishment of new entities – that have come to the forefront due to the reduced $0 threshold.
Based on the Amending Regulations and FIRB's guidance note, the key points and consequences of the changes include:
- $0 threshold applies to all foreign persons. The new $0 threshold applies to all foreign persons subject to the Act. This is irrespective of whether they are a private foreign investor or a foreign government investor, and irrespective of their country of origin. So it means all higher thresholds previously applying to investors from various countries that have free trade agreements (FTAs) with Australia have been reduced to $0, albeit temporarily.
- Pre-existing agreements not affected. The new $0 threshold does not apply to agreements entered into prior to 10.30pm AEDT on 29 March 2020, including in relation to acquisitions that have yet to be completed and irrespective of whether the agreements remain conditional. In this regard FIRB notes that it is possible for an 'agreement' to be reached prior to the formation of a contract, depending on the facts of each case. But the new $0 threshold will apply if material changes are made to any pre-29 March 2020 agreement as the Act considers that to be the entry into a new agreement. In relation to schemes of arrangement, any scheme implementation agreement entered into between a bidder and the target prior to 10.30pm AEDT on 29 March 2020 is not subject to the $0 threshold, even if the actual agreement involving the target's shareholders occurs later (ie. when the scheme becomes effective).
- No changes to non-monetary thresholds. The non-monetary thresholds under the Act have not changed. Nor will the definitions of notifiable action and significant action. For instance, a private foreign investor can generally still acquire less than 20% of an Australian company irrespective of value without needing FIRB approval (so long as the other special rules regarding land entities, agribusinesses and media sector businesses are complied with).
- Applicants are being asked to agree to extensions. The Act does not empower the Treasurer to unilaterally extend FIRB review periods for applications – apart from issuing interim orders to extend the period by up to 90 days. The Act effectively provides that extensions need to be agreed by applicants. The Amending Regulations have not changed this. Hence the Treasurer and FIRB have stated they will work with applicants to extend review periods to up to six months, meaning applicants will be or have been asked to agree to the extensions. It is expected that the majority of applicants will agree to longer than usual extensions to maximise their prospects of receiving approval.
- Continuation of existing exemptions but no new ones. The various exemptions under the Act (including the rights issue exception and moneylending exception) remain in place. However there are no new exemptions including no ordinary course or business as usual exemptions. Furthermore, the exemptions which apply to acquisitions of direct interests by foreign government investors – being the de minimis exception for offshore acquisitions (ie where the total value of the Australian entities is less than $55 million and less than 5% of the total assets of the target group), the wholly-owned subsidiary incorporation exception and the consortium exception – can no longer be relied on.
- No impact on exemption certificates. The Amending Regulations make clear that any exemption certificate granted before 10.30pm AEDT on 29 March 2020 to acquire commercial land over a certain period and up to a certain amount and which excluded acquisitions of low threshold commercial land will continue to be subject to that exclusion, notwithstanding the repeal of the low threshold commercial land provisions in the Regulations. It is also the case that business exemption certificates which exclude acquisitions of sensitive businesses will continue to be subject to that exclusion, as the concept of sensitive business has not been repealed by the Amending Regulations.
- Conditions to approvals. The Federal Government has stated that conditions imposed on FIRB approvals will remain for so long as required to protect the national interest and, as such, may remain in place after the expiry of the temporary COVID-19 changes. This is notwithstanding that, many transactions did not require FIRB approval under the pre-29 March 2020 FIRB regime but now require approval.
- Establishment of new entities. The Federal Government has stated that FIRB approval will generally not be required for the mere establishment of:
- an Australian company in anticipation of, and solely for the purposes of executing transaction in the future (where that transaction would require FIRB approval); and
- an Australian unit trust (however a later transaction involving the trust, such as the entry by the trustee into a lease, could require FIRB approval).
- Extensions of property leases. FIRB considers that a tenant under an existing property lease is taken to have entered into a new agreement if there is an extension to the term, and that the remaining term is added to the period of extension in ascertaining whether the lease has a term of more than 5 years and therefore whether there is an acquisition of an interest in land for FIRB purposes. This is not a new issue introduced by the COVID-19 changes but is one that has come to the forefront due to the new $0 threshold.
- Agreements for lease. FIRB takes the view that the entry into an agreement and lease and the entry into a lease are generally considered as two separate actions under the Act. The consequence is that a person with a FIRB approval for an agreement for lease may need to apply for separate approval for the lease where the term exceeds 5 years, unless the approval specified both the agreement for lease and the lease and both documents are entered into during the period specified in the approval letter (usually 12 month period). This is not a new issue introduced by the COVID-19 changes and seems at odds with FIRB's stated position that a person who has an option to acquire an interest in land is taken to acquire the interest at the time the option is created, irrespective of whether they subsequently exercise the option.
FIRB has also announced it will consider refunding application fees paid by applicants who withdraw their applications as a direct result of COVID-19, and also consider fee waiver requests for acquisitions of interests in developed commercial land for between $10 million and $55 million so that non-foreign government investors pay the same fee as foreign government investors, ie. $2,000 rather than $26,200.
The new $0 monetary screening threshold will have a significant impact on proposed transactions where the acquirer is a foreign person. For instance:
- Australian companies. Every acquisition by a foreign person of a 20% or greater equity interest in an Australian company now requires FIRB approval irrespective of value. Previously there was a monetary threshold of $275 million (and $1.192 billion for certain FTA investors).
- Australian land corporations. Every acquisition by a foreign person of any equity interest in an Australian land corporation now requires FIRB approval irrespective of value, unless it is a passive interest of less than 10% in a listed company or a passive interest in less than 5% of an unlisted non-residential company. Previously there were monetary thresholds which varied depending on the type of land held by the Australian land corporation.
- Australian agribusinesses. Every acquisition by a foreign person of a 10% or greater equity interest in an Australian agribusiness now requires FIRB approval irrespective of value. Previously there was a monetary threshold of $60 million.
- Capital raisings. Whilst the pro rata rights issue exception remains, a foreign person seeking to underwrite a capital raising by any Australian company (regardless of the value of the company) needs FIRB approval unless they enter into arrangements to cap their potential interest in the company to less than 20%, or unless the underwriter has an exemption certificate.
- Offshore acquisitions by private foreign investors. Where a private foreign investor indirectly acquires a 20% or greater interest in an Australian company via an offshore acquisition, it remains the case that such acquisition does not trigger the mandatory FIRB approval requirements unless the Australian company is an Australian land corporation or agribusiness and the applicable monetary threshold has been exceeded. The difference is that now the applicable monetary threshold is nil, meaning all offshore acquisitions of a 20% or greater interest in a foreign company which holds an Australian land corporation or agribusiness require FIRB approval (regardless of the value of the Australian land corporation or the agribusiness).
- Offshore acquisitions by foreign government investors. The above for private foreign investors applies equally to foreign government investors with one critical difference – offshore acquisitions by foreign government investors trigger mandatory FIRB approval. As mentioned above, the de minimis exemption no longer applies.
- Internal restructures. More internal restructures now requires FIRB approval and be subject to oversight by government agencies, particularly the Australian Taxation Office.
- Australian land. Every acquisition by a foreign person of an interest in Australian land now requires FIRB approval irrespective of value. This affects not just acquisitions of freehold, but also the entry into any property lease or extension of the term of any property lease (in each case whether it be commercial, retail or otherwise) as a tenant where the term (inclusive of any option to renew) exceeds five years or, for an extension of term, where the remaining term and the period of extension exceeds five years. Previously there were monetary thresholds which varied depending on the type of land. Separately, given FIRB's position on agreements for lease (see above), where there is a risk that the contemplated lease is not entered into within the FIRB approval's specified period (usually 12 months) it might be desirable for agreements for leases to contain put and call options for the entry into a lease so that for FIRB purposes the tenant is taken to acquire an interest in Australian land at the outset.
Given that the changes will require more transactions to be subject to FIRB scrutiny and involve longer assessment periods, foreign persons undertaking more than one-off transactions may wish to consider applying for exemption certificates to cover a program of acquisitions instead of applying for individual FIRB approvals.
Contact: Diccon Loxton
Last updated: 7 May 2020
For information on the latest developments regarding signing documents in a pandemic please click here.
Your questions answered
We have received a number of questions in response to our webinar Signing documents in a pandemic: what to do when signatories are isolated or scattered, hosted by Diccon Loxton. Many questions covered common themes, and answers to these are provided below. More specific questions are being answered directly and someone from our team will be in touch with you, if they haven't already done so.
We would be pleased to help you formulate policies or advise on issues and transactions. It is important to tailor these to your business needs. Different solutions will be appropriate for different businesses in different situations. There are many permutations and combinations available.
In New South Wales, under emergency regulations issued on 22 April, remote witnessing by audio-visual link is permitted. There are a number of procedural requirements. The regulations are currently due to expire on 26 September unless extended.
In Queensland, remote witnessing by legal practitioners of dealings in land and water rights, which are to be registered, is being permitted by the Registrar. Again, there are procedural requirements.
Otherwise, where witnessing is a formal requirement, as it is with deeds in most jurisdictions (except Victoria), then it's risky.
Where it's not a formal requirement then you can have remote witnessing, or no witnessing at all. This is the case with most agreements. In fact, in the current environment, parties should reconsider requiring a witness when agreements are signed. Requiring witnessing can cause a great deal of pain for relatively little benefit.
Generally, these can't be witnessed remotely (except in New South Wales). They need to be sworn or declared before a lawyer or a JP, meaning in their physical presence.
So, in relation to litigation, that's an issue. There are two different possible approaches.
One is to change the rules of the court, so it will accept other evidence (the Federal Court has just done this).
The other route is to change what the law requires in terms of affidavits and statutory declarations. This is what the New South Wales Government has done under temporary emergency regulations issued on 22 April 2020. Remote witnessing by audio-visual link is permitted. There are a number of procedural requirements. Other states may follow this example.
In the current circumstances, that is a possibility.
The rules say that you need to take 'reasonable steps' to verify identity. What are 'reasonable steps'? The rules set out what is generally known as the VOI Standard — a 'safe harbour' setting out procedures that will be taken to satisfy the requirement. They involve face to face identification.
But what can you do when that's impossible? The answer is the VOI Standard isn't the only way of satisfying the 'reasonable steps' requirement. You can take other procedures, but you then take the risk as to what are 'reasonable steps'.
We asked ARNECC (the body charged with developing the national electronic conveyancing legal framework) what was acceptable in the current circumstances. They have come out with a guidance that does not really elaborate on what would be 'reasonable steps', though they do say subscribers may consider using video technology. Victoria and New South Wales have adopted that guidance.
In Western Australia, Landgate has released an update acknowledging difficulties in full face-to-face VOI processes as a result of COVID-19 and directed practitioners to take reasonable steps to verify identity. But that update did not expressly refer to video technology.
In the current circumstances it is difficult to see how it could not be reasonable to verify someone's identity remotely: to have the interview by video over Skype (or similar), to see the passport and license over Skype and to receive scanned copies of them.
Judges would have current circumstances in mind, but they are confined by the relevant legislation and precedents which were set in normal circumstances.
Where the test they need to apply is what is 'reasonable' (as it would be in relation to the VOI requirements) they must take into account the surrounding circumstances, including that the parties are isolated.
On the vast majority of occasions, it is borne by the other party. Occasionally the risk is borne by signers because of their need to satisfy certain formal requirements and to demonstrate they have done so.
Signers can usually be more relaxed. That doesn't mean signers can just do whatever they like. In some transactions (particularly in corporate loan transactions etc) it is very important for the other party to be satisfied at the outset that the signer has properly signed the document. In those cases, the parties should discuss their respective requirements and plans early on in the transaction.
In the current circumstances, parties need to make balanced commercial decisions based on the risks and reassess their policies and practices. The desire for the perfect may drive out the good.
The solution needs to be appropriate to your business. Different solutions will be appropriate for different clients in different situations. There are many possible permutations and combinations to consider.
We are helping a number of clients in this regard and would be pleased to help you.
No, though they generally would accept them if they are satisfied the contracts are duly executed.
Yes. While there is little case law on it, it is consistent with a lot of case law looking at various methods of signature.
But if, say, Polly Bloggs wants to sign in that way, it is only effective if her signature is pasted into the document by her or by someone with her authority, or she authenticates it afterwards. People may want a paper trail to show this was done, like emails from Polly to the person who pasted the signature.
In the current circumstances, this is a very attractive way of signing documents. There are very strong arguments that, done correctly, it may be a route to satisfying the requirements of section 127(1). This may also be a route to creating paper deeds, though this may not be accepted by everyone.
Yes, and the signing can be done in many ways. The person signing needs to have been given authority to sign by the company. Deeds are a more complicated story.
Section 127(1) of the Corporations Act allows companies to sign documents by two directors or a director and a secretary.
It is useful because if they sign in that way, other parties can rely on an assumption in section 129(5) of the Corporations Act that the document has been properly executed. But it is not the only way companies can sign.
Our own view has been that electronic execution can satisfy s127(1) though others have disagreed.
This issue has been clarified for the next 6 moths. Under a Determination issued by the Treasurer under emergency legislation on 5 May, s127(1) and s129(5) are modified for that period to allow for electronic execution and split execution. Our view is this allows electronic signing of deeds but some others might disagree.
If you are concerned about due execution and you don’t think you can rely on the signer having ostensible authority, then you need to obtain confirmation or evidence that the signer had authority. That might include extracts of board minutes.
You may not be able to rely on the assumption in s129(5), but you may still be able to rely on the other assumptions in s129.
Note that under the temporary Determination referred to above, it is now clear a company can sign electronically under s127(1), and s129(5) allows other parties to assume a document signed in that way has been duly executed.
Yes (in the absence of notice or suspicion to the contrary). And you may not need any other evidence of authority.
Check early as to what the lender will require. While the temporary modification of s127 under the Determination outlined above is in place, they will probably accept that the document complies with section 127(1).
If for some reason they do still have a concern, then discuss solutions. For example, whether they are happy to rely on the 'backstop solution' (discussed below), and rely on a printout as an original. Some firms have been comfortable with that approach, but not all.
If the lender doesn't accept that this approach satisfies section 127(1), ask what it requires. It should be asking for evidence of authorisation of the directors to sign the contract to satisfy itself as to authority.
Traditionally this would be extracts of minutes or some other proof of authority. That accords with practice in other jurisdictions, but in Australia it may have the added advantage of being able to rely on the other assumptions in s129.
With deeds it may be more complex. Our view is that a deed may now be created in this way. But some lenders may not accept that.
The answer depends on the facts, but that may sometimes be the case, particularly when payment or performance occurs on signing.
Where the other party changes its position on the faith of the signature, there may be arguments the signing party is estopped from denying the effectiveness of its signature. On occasion, a party providing money on the faith of due execution may have restitutionary remedies.
These considerations may not always be reliable. In some recent cases arising out of forestry tax schemes, borrowers were able to deny execution even though they had the benefit of loans and had made the relevant claims for tax deduction, on the faith of expenditure funded by the loans.
The 'backstop' solution is to set things up so that a printout of a document signed through DocuSign or some other electronic means can be treated as an original and the signatures appearing on it deemed original signatures.
Even without relying on the modification contained in the Determination referred to above, the paper printout would be a 'document' and 'signed" for the purposes of sections 127(1) and 129(5), it could satisfy the requirement that a deed be paper, parchment or vellum.
That involves putting into the document some language to the effect that the relevant signers intend for their signature to appear on a printed copy of the document and the printed copy will be deemed an original document and the signatures appearing on it original signatures.
Effectively the whole system can be seen as a pen which the signatory uses to place his or her signature onto the printout.
We believe it is assisted by a couple of decisions; one in England and one in New South Wales where a person had signed a document then faxed it to somebody else and the faxed copy was held to be an original and duly executed by the person who sent the fax. The arguments are set out in detail in a paper by Diccon Loxton in the Australian Law Journal, available here (see pages 205-207).
With deeds signed by attorneys or individuals, similar approaches should work to satisfy the paper requirement, and may also work for other electronic methods. Any s127 objections do not exist. But others may not accept this approach.
We should say that our general view is, where the electronic legislation applies (the vast majority of cases), this is only necessary for more abundant caution.
The solution to any uncertainty is to have the deed governed by New South Wales law. See below.
While the temporary modification of s127 under the Determination outlined above is in place, this is not a concern.
In essence, Austin and Black in their commentary expressed some uncertainty as to whether an electronic document could be a 'document' under the section as unmodified. Looking at the definition and the detailed drafting of s127 as it was (and will be when the modification expires), they suggest it is directed at execution of physical documents. We respectfully disagree. The real purpose of the provision is to empower the relevant officers to bind the company, and not to focus on form.
The arguments are set out in a paper by Diccon Loxton on our website which can be found here (see pages 207-211).
We believe the 'backstop' solution outlined above would address their concerns.
One aspect of Pickard is that a document was purportedly executed under s127 by signatures being pasted in, but the court said there was no evidence those signatures were authorised or authenticated.
In the course of the decision, the court made a statement which has been taken by some as indicating that electronic signatures are not acceptable for the purposes of s127(1). See Bendigo and Adelaide Bank Ltd v Pickard  SASC 123 at .
We do not read it in that way. However, the same statement may tip some cold water on the idea of split execution (where officers sign separate counterparts), but not modified split execution (discussed below).
While the temporary modification of s127 outlined above is in place, this is not a concern.
The good news is it doesn't matter that the deed is electronic. Under a new provision, section 38A of the Conveyancing Act 1919 (NSW), a deed signed by an individual can be electronic. That includes an individual acting as an attorney for a corporation, but it does not include execution by a company under s127.
The bad news is that it is not a valid deed because under NSW law a deed needs to be witnessed.
In Victoria, it's the opposite. There's no requirement of witnessing but there is also no express provision that says the deed doesn't have to be on paper.
With deeds signed by individuals you can 'forum shop' a bit — selecting the governing law of the deed in order to get the rules that best suit you in terms of how the document is to be signed.
Yes. There are two main traps:
- make sure the document is fully agreed, and you are all signing the same version.
- With deeds and with documents 'spit executed' under section 127 of the Corporations Act (as temporarily modified), the entire document needs to be printed out and signed, not just the signature pages.
A variation on the remote execution theme, for documents which are to be signed by companies under s127, is 'modified split execution' (designed to avoid current uncertainty about 'split execution').
Under it, Director A signs a print-out of the document (or the signature pages), scans them and sends them to Director B who prints them out and signs a copy, which already incorporates Director A's signature. Many firms believe this is effective for the purposes of s127, and also for deeds.
It should be noted that under s127 as temporarily modified 'split execution', (where the two officers sign separate counterparts physically or electronically) works so long as the officers sign the entire document.
The above 'remote signing' procedures involve printing out and signing an entire deed. Particularly in the current circumstances, that may be difficult.
One option is to reduce the length of the deed that is being signed and have instead a 'mini-me' deed of about two or three pages. In that deed the parties agree to the terms of a longer document which is incorporated by reference.
It never hurts but in most cases it's not absolutely necessary, except in certain circumstances when you want to rely on one of the procedures outlined in our webinar.
- For the 'backstop' in relation to s127 or deeds (that is where you rely on a print-out being a paper original) you should include the relevant clarification.
- If you are relying on the modified split execution method, it can be helpful to have language that makes it clear the first signer's intention was that the signature should appear in the printout and the other person will sign it.
The manner of execution of the document needs to satisfy the law of the place in which it is signed or the governing law.
The best thing to do is select your governing law so it is one that it is easy to satisfy. In Australia, with deeds executed by individuals (including as attorneys) there are significant differences between states. In Asia we understand a difficulty with electronic execution is that there are a number of relevant exceptions to the relevant legislation that allow people to sign electronically.
Yes. With cloud-based signing platforms, there can be privacy law issues because it is necessary to give the platform the names and email addresses of signatories, so the platform can send emails to them. It is advisable to have a relevant privacy consent built into the procedure, be it on a website or in relevant emails that get sent as part of the process.
Last updated: 9 April 2020
The COVID-19 outbreak presents an unprecedented challenge to planning approval holders and applicants, whose original planning approval application or approval conditions may no longer represent what is commercially or practically achievable. Those challenges include delays to the planning approval processes and appeals, uncertainty regarding desired end use or development of land, and difficulties complying with approval conditions.
Some states have already moved to relax planning restrictions and open up fast-track opportunities for certain types of critical or significant developments.
As commercial and practical imperatives rapidly evolve, it is critical to take stock of the ways in which you may mitigate potential risks to your project in relation to its planning approvals.
Councils and other relevant decision-makers in all states and territories are still accepting and processing planning approval applications remotely. However, we expect to see varying degrees of delay across the states and territories. In particular, we note that:
- In Victoria and Western Australia, some councils have indicated it may take longer to process applications, and the delay experienced may vary across local government areas. In Victoria we are aware of some councils electing to extend public consultation timeframes in response to the COVID-19 outbreak.
- Queensland's planning legislation has been amended to introduce flexibility for the Minister to suspend or extend any of the statutory timeframes across the planning framework (including timeframes for assessing planning approvals). However, to date, this power has not been exercised.
Conversely, in New South Wales a Planning System Acceleration Program has been announced to fast-track assessments of rezoning and development applications, with more decisions to be made by the Planning Minister if required. It will also support councils and planning panels to fast-track locally and regionally significant development applications. Details about how this program will work are still to be released.
The courts and tribunals across Australia are still receiving and considering new appeals but are moving away from in-person attendances towards electronic methods of filing, and teleconferencing or videoconferencing platforms for hearings.
- In Victoria, VCAT continues to accept applications to commence proceedings but is indefinitely adjourning all hearings that are listed up to 15 May 2020 while it prepares to move to technology platforms to enable remote hearings.
- In New South Wales, there are to be no in-person attendances including conciliation conferences, mediations or at court listings. The court is adopting a specific case-by-case approach, and if conducting proceedings by teleconference or audio-visual link is not feasible, the listing is likely to be postponed. The NSW Government is seeking to clear the current backlog of cases in the court by utilising additional Acting Commissioners.
- Queensland's Planning and Environment Court is encouraging all parties to maximise the extent to which witnesses give evidence by telephone or video-link, minimise the number of individuals present in the courtroom at any one time, and make early arrangements for e-trials, in accordance with Practice Direction No 1 of 2016.
- In Western Australia, the State Administrative Tribunal (SAT), is still receiving and considering appeals, however, where possible, all hearings and mediations are being conducted by telephone or video conference. The SAT is encouraging all parties to minimise the number of individuals present in the Tribunal at any given time. The SAT will give priority to matters that are assessed as urgent. Mediations or hearings that are not assessed as urgent will be vacated and relisted with priority at a later date.
- In Tasmania, the Tribunal's response to COVID mandates that all directions hearings, mentions and mediations will ordinarily occur by telephone conference.
None of the states or territories have, to date, published any guidance or formally amended deadlines for appeals. However, we note that most tribunals and courts have general powers to extend statutory deadlines in certain circumstances, and these powers might be invoked due to any delays in lodging appeals caused by COVID-19. For example:
- In Victoria, VCAT has the power to grant an extension of time for the commencement of an appeal if to do so would not cause prejudice or detriment to the other party that could not be remedied by an appropriate costs order;
- In Queensland the Planning and Environment Court has the power to grant an extension, if satisfied that there are sufficient grounds;
- In Western Australia, the SAT has a broad power to grant an extension of time where the time limit for lodging an appeal has expired. The applicant needs to apply for an extension of time with the main factors the tribunal will consider being the length of the delay, the reasons for the delay, whether there is an arguable case and whether there would be prejudice to any person if an extension were granted; and
- In Tasmania, planning assessment and approval processes are continuing under modified processes that take account of coronavirus restrictions. The timeframes for certain applications that are already on public exhibition have already been extended by five weeks.
In New South Wales, the Land and Environment court does not have jurisdiction to extend the statutory timeframe for lodging a Class 1 merits appeal against a refusal (or deemed refusal) of a development application of modification application. However, the Court does have jurisdiction to extend time in certain other types of proceedings (eg compulsory acquisition proceedings).
We are seeing delays to planning approval processes and appeals of those approvals (including condition appeals) of varying degrees across the different jurisdictions. These delays are caused by practical difficulties connected with remote assessment of applications, the availability of experts, site access and, in some areas, obtaining baseline data for technical reports.
It would be prudent to revisit any agreements on foot in relation to your project, consider the risk allocation in relation to any delays in respect of planning processes, and to the extent possible consider negotiating and reallocating those risks.
The current economic climate is also creating uncertainty for some projects regarding what end use or development of land ought to be pursued. In an uncertain market, consider (where possible) seeking to have project approvals incorporate flexibility and/or options to cater for changes that may arise, to the extent possible eg through the adoption of secondary consent mechanisms. We also recommend engaging with the relevant consent authority to ensure your approval conditions will not be unduly restrictive or impractical in the current circumstances.
Consider also jurisdiction-specific changes to planning approval requirements that you may be able to take advantage of:
- In New South Wales, amendments have been passed that allow certain types of development which protect the health, welfare and safety of the community during the pandemic to proceed without the normal planning approvals.
- The NSW Government recently announced the Planning System Acceleration Program which is intended to fast track assessments of State Significant Developments, rezonings and development applications, and local and regionally significant developments.
Western Australia has amended its planning legislation to enable the Minister for Planning to issue exemptions from planning requirements while a state of emergency is in force. Exemptions can be in relation to (amongst other things) a requirement to obtain development approval, the permissibility of uses of land or a requirement in relation to consultation, advertisement, applications, time limits or forms. An exemption must be necessary for the purpose of facilitating response to, or recovery from, the emergency to which the state of emergency declaration relates.
It may prove difficult or impossible to comply with certain approval conditions during the COVID-19 outbreak, such as:
- dates for commencement or completion of development;
- conditions requiring post-construction assessments or ongoing monitoring to be undertaken, such as noise, groundwater and air quality assessments/monitoring. Difficulties could arise due to travel restrictions, inability to access sites, physical distancing requirements and in some cases an inability to obtain background monitoring data that is representative of business as usual activities;
- conditions that cannot be complied with due to social distancing requirements, eg keeping certain areas of a site open to the public.
We recommend undertaking an audit of your approval conditions to determine whether compliance presents any challenges in the current climate. You may wish to apply to the relevant consent authority to seek a condition variation/amendment, either on a permanent or temporary basis.
Consider also jurisdiction-specific relaxations of certain planning approval constraints that may be available:
- Queensland has recently amended its legislation to provide the opportunity for any person to seek temporary relief from conditions or operating constraints arising from planning approvals through a simple application for a temporary use licence. A temporary use licence can also be used to change the existing lawful use of premises, including by adding a new use or replacing the existing lawful use with a new use.
- Queensland has relaxed requirements around operating hours and restocking of essential businesses such as supermarkets. Likewise, New South Wales has passed amendments that allows retail supply chain premises to operate outside normal trading or delivery hours.
- Victoria has passed amendments aimed at removing planning restrictions on the hours or days during which the loading and unloading, dispatch and delivery of food and other essential goods can occur during the COVID-19 state of emergency. The purpose of this amendment is to allow supermarkets, hospitals, pharmacies and other essential businesses to continue to meet significant community demand. Unusually this is sought via an amendment to the Victoria Planning Provisions which purports to override the conditions attaching to existing planning permits.
- Western Australia has amended its planning legislation to enable the Minister for Planning to issue exemptions from planning requirements while a state of emergency is in force. It may be possible to seek an exemption from certain constraints in planning approvals. An exemption must be necessary for the purpose of facilitating response to, or recovery from, the emergency to which the state of emergency declaration relates.
Last updated: 15 May 2020
COVID-19 raises a range of regulatory issues from a competition and consumer law perspective. The crisis may lead to competitors wishing to merge or otherwise collaborate, raising questions about the need for ACCC clearance or authorisation. Events and orders for goods and services may need to be cancelled due to the pandemic, with important consumer law implications. It is critical that businesses keep in mind their obligations under competition and consumer laws. We take a look at the most common questions below.
You may be able to speak to and collaborate with peers, but it depends on the circumstances and you must bear in mind that the usual rules of competition law still apply. In particular, criminal cartel laws prohibit competitors from agreeing to fix prices, restrict supply or acquisition, allocate customers or markets, and coordinate in relation to bids and tenders. Eg the following cooperation between competitors could raise competition law issues:
- sharing information or collaborating with competitors to manage pandemic-related supply or demand shocks;
- sharing staff with competitors in the event of staff illness or self-isolation;
- where there is increased demand or supply issues, agreeing with your competitors to allocate markets or customers to ensure that all customers can be serviced;
- coordinating with your competitors on bids or tenders, even in response to emergencies; and
- allowing industry organisations (eg a trade association) to make pricing, output or supply decisions on behalf of its members during the pandemic.
There are specific exemptions to the cartel provisions (including for legitimate pro-competitive joint ventures), and the ACCC is able to grant authorisations – including urgent authorisations – for some forms of restrictive practices that result in a net public benefit. Eg Coles (represented by Allens) was successfully granted urgent interim ACCC authorisation within two business days to permit the major supermarket chains to work together to facilitate access to grocery products, given recent increased demand.
If you are planning to engage in any form of collaboration with your competitors in response to COVID-19, we recommend seeking legal advice as soon as possible.
COVID-19 will impact the speed with which the ACCC can review mergers and the issues it will consider in distressed sales.
The ACCC has transitioned the vast majority of its staff to remote working, and meetings are being conducted by phone and video conference. These measures are aimed at ensuring the ACCC can continue to operate; however, it has forewarned that, in certain cases, there may be a need to extend review timetables.
At this stage, the ACCC has not asked parties to delay merger review applications but is requesting parties to consider whether some reviews could be postponed – eg those where the transaction is at a very early stage.
The ACCC has indicated it may need to prioritise matters further if the situation worsens.
The ACCC has acknowledged that the current environment is likely to result in increased consolidation where one or both merger parties is experiencing financial difficulty. The ACCC has stressed that it will take a case-by-case approach when assessing these applications, and take into account:
- how the structure of the market may be affected by the relevant party's current financial difficulty in the longer term – both with and without the merger; and
- evidence of how the financial difficulties go beyond a short-term impact on profits and share value (ie in terms of the relevant party's ongoing viability and competitiveness).
These merger applications often include 'failing firm' arguments (ie that the business in financial difficulty would have exited the market in any event). Such arguments are likely to be closely scrutinised by the ACCC. It generally requires strong supporting evidence that the relevant business is unlikely to recover, and that its brand and assets will exit the market in the absence of the merger. The ACCC will also consider whether there are other likely bidders for that business that raise fewer competition concerns.
If you have to cancel an order for goods, you will have to provide a full refund in most circumstances.
Consumer protection laws continue to apply during the pandemic, and businesses should be aware of their obligations under the consumer guarantees regime. If you accept payment for goods, they must be supplied within the timeframe indicated or within a reasonable time (if no timeframe is indicated).
The ACCC has made it clear in its COVID-19 guidance for small businesses that businesses will have to provide full refunds where they can no longer supply goods ordered by customers, due to supply issues. However, where it is the supplier's fault that the business cannot supply the goods, the business might be entitled to reimbursement under the contract with the supplier.
Promoting goods and services during the pandemic where there are shortages / supply issues poses a number of specific considerations:
- Misleading representations: The general prohibition on misleading and deceptive conduct in trade remains important, as do the specific prohibitions on false or misleading representations in relation to matters such as price, uses, standards and sponsorship of goods or services. Particular care should be taken when identifying the reasons for any stock shortages: eg to ensure all statements are accurate.
- Supply chain disruptions: Disruptions to supply chains may cause certain goods to become unavailable for periods of time. To avoid bait-advertising risks, businesses need to monitor their stock and advertising, and avoid advertising goods that they do not have in stock.
Competition and consumer laws do not specifically prohibit the setting of excessive prices, or 'price gouging', and businesses can generally set their own prices. However, depending on the circumstances, price gouging may be caught by the general prohibitions on misleading or deceptive conduct and unconscionable conduct.
Businesses should ensure that:
- statements about the reasons for any price increases are accurate and not misleading; and
- price increases can be justified and are never an attempt to take advantage of vulnerable customers during the pandemic.
The Federal Government recently used its emergency powers under Australia's biosecurity laws to introduce measures intended to put a stop to price gouging of personal protective gear and disinfectants (such as medical face masks, hand sanitiser and gowns). Among other things, these measures prevent the reselling of such items (when purchased on a retail basis) for more than a 20% mark-up than the original price paid, with non-compliance punishable by a $63,000 fine and/or five years imprisonment.
Last updated: 17 April 2020
We are working closely with clients on the tax implications of COVID-19 for intragroup arrangements. Below we have outlined the most pressing transfer pricing and other international taxation considerations concerning large multinational groups.
An APA is an agreement reached between a taxpayer and one or more tax administrations on the pricing of intercompany transactions over an agreed period. All APAs contain so-called 'critical assumptions'. These are assumptions that are so significant that neither party to an arm's length situation would continue to be bound by the terms of the APA if any of the assumptions changed. The types of critical assumptions that may be particularly strained, or even breached, in the current environment, include the following:
- no force majeure event;
- no significant change in industry circumstances or wider economic conditions;
- no significant change in functions performed, risks borne or assets used by the relevant taxpayer(s); and
- no significant fluctuation in the supply of, or demand for, the underlying good or service that is subject to the APA. This critical assumption may involve a quantitative test.
It is therefore vital to review the critical assumptions in all existing APAs to assess whether any of them have been breached. If so, it may need to be renegotiated, suspended or cancelled. In these circumstances, it is important to develop an APA strategy, including determining:
- whether the arrangements continue to represent arm's length behaviour;
- how (if at all) you intend to engage with the tax administration(s);
- whether the business intends to be bound by the terms of the APA, both in the short-term and long-term; and
- if so, whether a continuation, modification or temporary suspension of the existing APA terms is desirable.
We note that COVID-19 might give rise to circumstances in which a company's directors and/or employees opt to work from a jurisdiction other than their main jurisdiction of residence. Where these arrangements are likely to persist, it is important to consider, amongst other things, whether:
- this affects the tax residence of a group company by virtue of changes in its 'central management and control' or 'place of effective management';
- they create a new taxable presence (known as a 'permanent establishment'), such as by directors or senior employees concluding major contracts in the name of the business or having a new fixed place of business; and
- it materially affects the perceived economic substance of group companies.
The OECD Secretariat has recently issued guidance on the above, expressing the view that it is unlikely that the temporary dislocation of individuals brought about by COVID-19 will give rise to inadvertent changes in corporate tax residence or permanent establishments. Consistent with this, the ATO has helpfully provided partial comfort on some of these issues from an Australian tax perspective, including:
- not applying compliance resources to determine if central management and control is in Australia if COVID-19 is the only reason for holding board meetings in Australia or directors attending board meetings from Australia; and
- not recognising an Australian permanent establishment if a foreign company did not previously have a permanent establishment in Australia, provided there are no other changes in the company's circumstances and the unplanned presence of employees in Australia is the short-term result of being temporarily relocated or restricted.
Whilst this comfort is welcome, it does not cover the full range of possibilities taxpayers could be facing in the current environment. These may include, but are not limited to, the following:
- group companies whose functional profiles have inadvertently changed as a result of employee relocations and whether the group transfer pricing policies remain valid;
- foreign companies whose small number of directors and employees change their usual residence (eg captive insurance providers, IP holding companies, financing entities) and whether they have maintained the requisite level of economic substance to support group transfer pricing policies;
- directors and senior employees voluntarily working remotely from a foreign jurisdiction for personal reasons (eg working from a 'holiday house', working from a foreign family member's house) even where there are realistic opportunities to travel to their usual place of residence; and
- Australian companies whose directors and/or employees change their usual residence and the other jurisdiction is not offering the same degree of leniency as the ATO.
If you consider that your business operations may fall within one or more of the above circumstances, it will be important to scrutinise your international tax affairs, particularly if there is a possibility that the current (interim) arrangements may continue for a period after COVID-19 restrictions are lifted.
It is well recognised that COVID-19 has given rise to significant changes to business operations. These changes include supply chain disruptions, temporary suspension of key functions, digitalisation of manual functions, widespread virtual working, relocation of personnel, asset sell-offs and employee redundancies. Where there have been such changes, important considerations include whether:
- your intercompany legal agreements and intragroup transfer pricing policies remain fit-for-purpose (see below); and
- there has been a 'business restructuring', thereby requiring a change in transfer pricing policy and potentially giving rise to a CGT event (commonly referred to as an 'exit charge'). Where there has been a business restructuring event, contemporaneous documentation describing the decision-making process and articulating the arm's length nature of the restructuring is strongly encouraged.
The day-to-day operations of many businesses have drastically changed in response to the challenges posed by COVID-19. This has led to many real-life examples not only of contractual renegotiations, but also the unilateral waiver of contractual rights. In an intragroup context, it is necessary to consider whether related parties, at arm's length, would renegotiate the pricing of their arrangements in the current environment.
In doing so, it is necessary to review your group's intercompany legal agreements. If there are express contractual terms permitting a renegotiation or change in pricing in extenuating circumstances (eg material adverse change or force majeure), you will need to consider whether, in the context of your business, they come into effect. Even if they do not, or the agreements are silent on the question of renegotiation, it may be legitimate to ask whether, at arm's length, a renegotiation (or even unilateral waiver) may be expected.
This analysis is particularly important for entities with 'limited risk' or 'routine' pricing arrangements (eg fixed mark-up on cost, guaranteed return on sales). COVID-19 is likely to strain many limited risk structures, particularly where fixed or guaranteed remuneration will result in substantial residual losses being recognised elsewhere. Therefore, notwithstanding the transfer pricing policy in place, it will need to be determined whether groupwide extraordinary losses can be shared amongst the 'limited risk' or 'routine' entities and, if so, to what extent they can at arm's length. Similarly, for those groups with extraordinary profits, it may be necessary to determine whether those profits ought to be shared with the 'limited risk' or 'routine' entities. The degree of flexibility in your intercompany legal agreements and transfer pricing policy will come down to the specific facts and circumstances of your business, with industry-wide factors especially important.
When there is an economic shock, a multinational group's treasury function often needs to respond rapidly to meet the needs of its core operations. This may include equity injections, short-term intragroup loans, interest holidays, negative cash pools, the relaxation of repayment terms, the waiver of debt covenants and the provision or extension of credit facilities. This gives rise to a range of tax considerations, including:
- the characterisation of capital transactions as debt or equity (and the transfer pricing consequences);
- the characterisation of payments as interest or dividends (and the withholding tax consequences);
- the appropriateness of existing guarantee fee arrangements (if in place) and/or whether guarantee fees need to be implemented (if not in place);
- whether the intragroup financing transfer pricing policies need to be adjusted given changes to money markets, capital markets and the group's external financing arrangements; and
- whether thin capitalisation rules are breached. We welcome the ATO's recent announcement that it will not apply compliance resources to taxpayers that would have satisfied the safe harbour test but for COVID-19 and use their best endeavours to apply all criteria of the arm's length debt test ('ALDT'). It is important to keep in mind, however, that the determination of the ALDT must be made on the basis of a standalone Australian taxpayer, ie an assumption that no guarantee, security or other form of credit support has been provided to the entity by associates.
Where COVID-19 has had a material impact on your balance sheet and/or your intragroup financing arrangements, it is especially important to review both the immediate tax implications and the longer term suitability of your existing tax policies associated with your intragroup financing arrangements.
Last updated: 6 May 2020
State and territory governments have swiftly implemented various tax relief measures in response to the COVID-19 pandemic. We summarise the most recent developments in land tax and payroll tax relief, across the country, to assist taxpayers through these uncertain times.
The National Cabinet has agreed that pandemic relief measures will be operative for six months unless declared otherwise by the responsible minister. It has also released a Mandatory Code of Conduct for commercial leases during COVID-19, which provides a set of leasing principles that eligible businesses are to apply. Relevantly for the purposes of land tax, the Code requires that '[a]ny reduction in statutory charges (eg land tax, council rates) or insurance will be passed on to the tenant in the appropriate proportion applicable under the terms of the lease'.
The Government has announced the following measures:
- Six-month deferral of payroll tax for businesses with grouped Australian wages of over $10 million for the 2019/2020 financial year.
- Payroll tax relief for businesses with grouped Australian wages of no more than $10 million, specifically:
- 25% reduction in annual tax liability when annual reconciliations are lodged; and
- relief from paying payroll tax for March, April and May 2020 for businesses that lodge and pay monthly.
- An increased tax-free threshold from $900,000 to $1 million for the 2020/2021 financial year.
- Land tax reduction of up to 25% (by way of refund) for the 2020 land tax year where:
- the land is used for business or residential purposes;
- the land is being leased to a residential tenant, or a business tenant with annual turnover of $50 million or less, who, in either case, can demonstrate financial distress resulting from the COVID-19 outbreak;
- the landlord reduces the rent of the affected tenant by at least as much as the tax reduction; and
- the land tax is directly related to the property for which rent has been reduced.
- Financial distress is:
- for commercial tenants – a revenue decrease of 30% due to COVID-19; and
- for residential tenants – a decrease in household income of 25% due to COVID-19.
- Extended payment deadlines and leniency for late payments of land tax. Payment by instalments is also available; however, no land tax discount will be available to landlords who pay by instalment.
- Three-month deferral of any outstanding land tax for landlords who claim the land tax concession.
More information is available from Revenue NSW.
The Queensland Government's economic relief package introduced tax relief measures including $740 million dedicated to payroll tax refunds and $400 million in land tax relief.
The Government has announced the following measures:
- A two-month refund of payroll tax and three-month payroll tax waiver for businesses with Australian taxable wages up to $6.5 million.
- A three-month payroll tax waiver for businesses with Australian taxable wages over $6.5 million that have been impacted by the COVID-19 pandemic.
- Deferral of payroll tax payments for the 2020 calendar year.
- A payroll tax exemption for wages to the extent that they are subsidised by the JobKeeper scheme.
The Queensland Treasury has also released a fact-sheet on payroll tax relief.
More information is available here.
- A land tax rebate reducing land tax liabilities by 25% for eligible properties for the 2019/2020 assessment year.
- A three-month deferral of land tax liabilities for 2020/2021.
- A waiver of the 2% land tax foreign surcharge for foreign entities for the 2019/20 assessment year.
- For landlords to be eligible for the land tax rebate, they must provide rent relief 'at least commensurate with the land tax relief' to tenants whose capacity to pay rent has been affected by COVID-19. The landlords must also comply with Queensland leasing principles.
- Additionally, landlords who are unable to secure tenants because of the pandemic and require relief to meet financial obligations will be eligible for the rebate.
More information is available here.
The Government has also introduced a six-month waiver of state land rent, up to a total of $33.5 million, for eligible farmers, businesses, tourism operators, and community and sports clubs. More information is available here.
The Victorian Government declared a State of Emergency on 16 March 2020, which was extended on 12 April 2020. A range of tax measures were introduced as part of a broader economic survival package to support businesses during COVID-19.
The Government has announced the following measures:
- For businesses with annual taxable wages of up to $3 million:
- a full payroll tax refund for the 2019/2020 financial year; and
- payroll tax deferral for the first quarter of the 2020/2021 financial year.
Eligible businesses must continue to lodge returns.
- For businesses that make additional payments to employees as part of the JobKeeper program:
- for employees who have come to an agreement with their employer to be stood down and not perform any work, the full $1500 per fortnight paid to them is exempt from payroll tax; and
- for employees who are paid less than $1500 per fortnight and have not been stood down, the payroll tax exemption applies to the difference between $1500 and their fortnightly wage.
- Unlike other jurisdictions, Victoria has only offered limited payroll tax relief for the JobKeeper scheme. The payroll tax relief only extends to any additional payments made by employers to their employees in order to qualify for the JobKeeper program.
- A 25% discount to landlords who provide rent relief to tenants who have been financially affected by the pandemic. This will also apply to landlords who cannot secure a tenant during this period, and will be available from 1 May 2020.
- Deferral of outstanding land tax until March 2021. This will be managed by a newly appointed Coronavirus Relief Deputy Commissioner at the State Revenue Office.
For commercial landlords to be eligible for these land tax relief measures, their tenant must be eligible for the Jobkeeper Payment and have an annual turnover of $50 million or less.
More information is available here.
The WA Government has introduced a $607 million stimulus package, including tax relief to support businesses that have been impacted by COVID-19.
The Government has announced the following measures:
- An increase of the initial payroll tax threshold on 1 January 2020 to $950,000. A further increase of the payroll tax threshold to $1 million is scheduled for 1 July 2020.
- A waiver of payroll tax from March 2020 to June 2020 for employers whose taxable wages are less than $7.5 million at 30 June 2020.
- A payroll tax exemption for wages to the extent that they are subsidised by the JobKeeper scheme.
- A one-time grant of $17,500 for employers whose taxable wages for 2018/2019 were more than $1 million but less than $4 million.
These measures have retrospective application from 1 March 2020.
More information is available here.
To date, land tax relief measures have not been decided. However, a six-month moratorium on evictions for certain commercial tenancies and a mandatory code of conduct for landlord-tenant negotiations have been introduced.
The SA Government has committed to a large relief package, including $50 million in dedicated land tax relief. Changes to payroll tax have also been made under the COVID-19 Emergency Response Act 2020 (SA), in force from 9 April 2020.
The Government has announced the following measures:
- A six-month payroll tax waiver for business with Australian grouped wages up to $4 million for 2018/2019. RevenueSA will notify eligible businesses directly.
- A six-month payroll tax deferral until October 2020 for businesses with Australian grouped wages over $4 million for 2018/2019.
- A payroll tax exemption for wages to the extent that they are subsidised by the JobKeeper scheme.
- A land tax reduction of 25% in the 2019/2020 land tax year for eligible landlords who provide rent relief commensurate with the land tax reduction to tenants experiencing financial distress due to COVID-19:
- landlords will only be eligible for a land tax reduction for commercial tenants with an annual turnover not exceeding $50 million and that have suffered demonstrable financial distress, being a 30% fall in revenue due to COVID-19, and eligibility for the Australian Government's JobKeeper Payment; and
- relief is also available to landowners who are unable to secure a tenant because of COVID-19.
- Deferral of the third and fourth instalment of 2019/2020 land tax for landlords that pay quarterly. Payment can be deferred for up to six months from the date of the third instalment.
- An increase in the 2020/2021 Land Tax Transition Fund relief from 50% to 100%. This is based on the existing relief guidelines.
More information is available here.
The Tasmanian Government has released a business stimulus package administered by the Commissioner of State Revenue.
The Government has announced the following measures:
- A waiver of 2019/2020 payroll tax for employers with Australian wages (and Australian Group wages) of up to $5 million annually. Employers must be able to demonstrate that their operations have been affected by the current pandemic.
- A waiver of 2019/2020 payroll tax for employers in the Tasmanian hospitality, tourism and seafood industry.
- A 12-month payroll tax rebate for employers who employ new youth employees (aged 24 years and under) between 1 April and 31 December 2020 in either full-time or part-time positions.
- A payroll tax exemption for wages to the extent that they are subsidised by the JobKeeper scheme.
- A land tax waiver for commercial properties for the 2020/2021 financial year where business operations have demonstrably been affected by the current pandemic.
- Financial hardship provisions for landlords struggling to pay land tax. Landlords are advised to contact the State Revenue Office for specific details.
More information is available here.
The ACT Government has committed to a $351 million economic survival package to support the ACT community through the COVID-19 pandemic. Emergency measures have been implemented under the COVID-19 Emergency Response Act 2020 (ACT), which are in force from 8 April 2020 for 12 months.
The Government has announced the following measures:
- A six-month waiver of payroll tax for eligible businesses whose operations have been impacted by COVID-19. Eligible businesses are those operating in industries designated as prohibited activities, including food and drink, beauty and personal care services, entertainment venues, leisure and recreation, residential facilities (including hotels, apartments and hostels), outdoor recreation, non-residential institutions (including galleries, and museums and community facilities).
- Interest-free deferral of 2020/2021 payroll tax until 1 July 2022 for businesses with wages up to $10 million.
- A payroll tax exemption for wages to the extent that they are subsidised by the JobKeeper scheme.
- A land tax credit for landlords who reduce their rent by at least 25% due to COVID-19. The credit will cover 50% of the rental reduction, up to a limit of $1,300 per quarter, and will be applied as a reduction to the land tax account. Landowners will need to apply via this form. More information can be found via the ACT Revenue Office.
- A rates rebate of $150 for all residential properties in the ACT from 1 July 2020, to be automatically applied to the 2020/2021 rates bill.
The NT has a number of programs and initiatives set up to support small businesses through the pandemic.
The Government has announced the following measures:
- Six-month payroll tax relief from April 2020 for eligible businesses with total Australian taxable wages for 2019/2020 of under $7.5 million and that can demonstrate substantial hardship due to the COVID-19 pandemic:
- eligible businesses are those with an annual turnover of up to $50 million and that can demonstrate at least a 30% reduction in turnover compared with the same month or quarter in 2019. A dedicated Central Hardship Register will be operational from May 2020. Registration of hardship will be a pre-requisite for eligibility.
- Payroll tax deferral until 21 September 2020 for employers that are registered on the Central Hardship Register, have total Australian wages of over $7.5 million, and have experienced at least a 50% reduction in turnover compared with the same month or quarter in 2019.
- Flexible payment options on request, including payment by instalments and extension of time, for businesses that do not qualify for payroll tax relief but can demonstrate financial incapacity.
Businesses can apply from 1 May 2020. More information is available from the Territory Revenue Office.
There is no land tax in the NT.
The NT Government is providing financial support to commercial tenants with turnover of less than $50 million that are experiencing economic hardship: ie a reduction in turnover of more than 30%. Where there is demonstrated economic hardship, commercial tenants can request rent relief from their landlord. Landlords will be expected to negotiate relief in line with the national Code of Conduct for commercial tenancies. Landlords who provide rent relief will be eligible for payroll tax and utilities relief. From 1 May, utility bills for commercial properties have been halved for the next six months for businesses suffering COVID-19-related economic hardship. The property activation levy introduced in July 2019 will also be waived for relevant landlords whose property becomes vacant due to the COVID-19.
Last updated: 11 May 2020
The JobKeeper program is the Federal Government's wage subsidy scheme that was announced on 30 March 2020 in response to the economic effects of COVID-19. Under the scheme, eligible entities can receive $1,500 per fortnight for each eligible employee to subsidise the cost of retaining the employee throughout the pandemic. The scheme is available to eligible businesses, charities and religious organisations.
Treasury has indicated that the first payments will be made in the first week of May for the two initial JobKeeper subsidy payments in April. Originally, the deadline to enrol for these initial subsidy payments was 30 April 2020. However, the Commissioner of Taxation has extended this deadline to 31 May 2020. If an organisation does not satisfy the eligibility requirements until after 31 May 2020, it may still apply at a later date but will not be able to backdate payments to the beginning of April.
To assist you in considering whether your organisation is eligible for the JobKeeper program, we have addressed some of the common questions asked by clients below.
 Rules s 13.
20 April 2020
Enrolments for the JobKeeper payment open via the ATO's Business Portal.
4 May 2020
Enrolled businesses should begin registering eligible employees with the ATO.
8 May 2020
Last day for employers to satisfy the 'wage condition' for the two April fortnights. The wage condition requires employers to pay eligible employees $1,500 (before tax) per fortnight to receive the JobKeeper payment.
10 May 2020
Last day for employers to satisfy the 'wage condition' for the first May fortnight.
24 May 2020
Last day for employers to satisfy the 'wage condition' for the second May fortnight.
31 May 2020
Last day to register for JobKeeper and identify eligible employees to receive the JobKeeper payment for April and May.
After applying, businesses must make a monthly declaration that (1) confirms their employees are still eligible to receive the payment and (2) details the business's current and projected GST turnover.
The ATO will pay employers their JobKeeper payment in arrears. The payment should be made by the ATO within the first week of the end of each month.
There are three basic eligibility requirements that an entity must satisfy to qualify for the JobKeeper scheme:
- The employer must not be an excluded entity. The major banks, Australian government agencies, local governing bodies, sovereign entities (and wholly owned subsidiaries of sovereign entities) and companies with a liquidator or provisional liquidator appointed are excluded entities and cannot receive JobKeeper payments.
- On 1 March 2020, the employer must have carried on its business in Australia or, if a not-for-profit, pursued its objectives principally in Australia. Deductible gift recipients that are a declared developing country relief fund or developing country disaster relief fund on 1 March 2020 are also eligible. In all three cases, these requirements must be satisfied on 1 March 2020. Businesses and charities that were not operating on 1 March 2020 will not be eligible for the scheme.
- The employer must satisfy the 'decline in turnover' test at the relevant test time. The decline in turnover test requires calculating GST turnover for a relevant month or quarter since 1 March 2020 and comparing it against an earlier month or quarter. There are many modifications to the way GST turnover is calculated (see below question on calculating GST turnover). There is a [basic test and there are also alternative tests] (see below question on relevant comparison periods) which are available in some defined circumstances where the basic test is inappropriate.
The 'decline in turnover' test is the Government's chosen mechanism to determine whether a business has been impacted by COVID-19, although it does not expressly require a business to show COVID-19 was the cause of any downturn.
In broad terms, a business will satisfy the 'decline in turnover' test if the business' GST turnover has dropped by a specified percentage from a relevant comparison period. The relevant comparison period against which decline in turnover is tested is generally the corresponding period in 2019 (this is the basic test). If the basic test cannot be satisfied, then in some circumstances, an alternative test might be available which allows for an alternative comparison period to be tested.
The decline in turnover test operates as follows.
- Determine which decline threshold applies to the business – 15%, 30% or 50%. ACNC registered charities which are not universities or schools will only need to demonstrate a 15% decline in turnover. Other entities will be subject to the 30% or 50% threshold depending on their aggregated turnover (see next question), which is calculated on a group basis.
- Calculate the decline in GST turnover. This involves identifying the relevant comparison period and then calculating the difference between the projected GST turnover and the current GST turnover (see below question on calculating GST turnover) on the basis of that comparison period. Under the basic test, the business can choose either a month to month comparison (eg April 2019 to April 2020) or a quarterly comparison (eg. Q2 2019 and Q2 2020). If the basic test is not met then, in some circumstances, an alternative comparison period might be available under an alternative test (see below question on relevant comparison periods).
- Determine if the decline in GST turnover meets the threshold.
'Aggregated turnover' is defined pursuant to the small business entity rules in section 328-115 of the Income Tax Assessment Act 1997 (Cth).
Aggregated turnover includes the turnover of the employer as well as its connected entities and affiliates (including foreign turnover). In simple terms, an individual or company will be an 'affiliate' if it acts, or could reasonably be expected to act, in accordance with the directions or wishes of another business. An entity will be a connected entity if it owns, or has the right to acquire, at least 40% of any income distribution, capital distribution or voting rights.
This concept does not rely on the income tax consolidated group or GST group concepts. The turnover of related foreign entities can be included in aggregated turnover.
Technically, an entity's GST turnover for a particular period includes the value of supplies made (or likely to be made) during that period. GST turnover is ordinarily used merely to assess an entity's requirement to register for GST and its relevant GST periods, and as such, can be difficult to apply to a specific month or quarter due to silence in the law as to the timing of when a supply is made. Strictly speaking, the attribution rules under GST law and accruals or cash accounting methods are not relevant to determining the time a supply occurs.
Fortunately, the ATO has acknowledged this issue and we welcome the practical guidance issued on 4 May 2020 in LCR 2020/1. The ATO has said it will accept various alternative methods for calculating GST turnover (rather than assessing the potentially vexed question of when a supply occurs), including using accrual accounting, GST attribution rules or even income tax accounting (if not registered for GST).
There are some important principles and modifications to keep in mind when calculating GST turnover.
- GST-free supplies should be included in the calculation of turnover, but input taxed and personal supplies should be excluded.
- GST turnover is generally calculated on an entity-by-entity basis. Supplies made to related entities need to be included (even when part of the same GST group). If one entity runs multiple businesses, the turnover from these should be combined. There is an exception to this rule for certain service entities (see next question).
- Charities and deductible gift recipients should include certain gifts and donations even though these might not be consideration for a supply.
- Charities (other than universities and schools) that receive certain government grants can elect to disregard those grants.
When the JobKeeper rules were introduced on 9 April 2020, it was unclear how they would apply to corporate groups with a discrete employment service entity.
Treasury has acknowledged that the decline in turnover test, as calculated on a standalone entity basis, is not an appropriate test for group service entities. As such, on 1 May 2020, modifications to the decline in turnover test were introduced to essentially allow for service entities to calculate a decline in GST turnover on a group basis.
These modifications can be applied retrospectively to assist in determining eligibility for the first two April JobKeeper fortnights. An employer entity that can already satisfy the decline in turnover test on a standalone basis does not need to assess the impact of these modifications.
An employer entity is eligible to apply these modifications to the calculation of GST turnover if:
- the employer entity is a member of a consolidated group, consolidatable group or a GST group; and
- the employer entity’s principal activity is supplying other members of the group with employee labour services (it must not supply services outside the group, except incidentally).
The Commissioner also has an apparently wide discretion to issue a determination preventing an entity from applying these modifications in assessing its decline in turnover. This discretion merely requires the Commissioner to be satisfied, having regard to the purpose of the JobKeeper scheme and any other matter the Commissioner considers to be relevant, that these modifications are 'unsuitable' or 'risk the integrity' of the Commissioner's administration of the scheme.
If eligible, the employer entity will essentially use the GST turnover of the relevant group members to which the employer entity has provided the employee labour services for the purposes of assessing its decline in turnover. These modifications can also be applied if assessing a decline in turnover based on an alternative test.
An entity can choose any period that is a month or quarter occurring between March 2020 and September 2020 as the period in which the decline in turnover is tested. The period chosen does not need to be consistent with related entities, or with the entity's ordinary GST periods, but the entity will only be eligible for JobKeeper from a time during that chosen test period. Universities must use a six month period commencing on 1 January 2020 as their test period.
Under the basic test, the relevant comparison period (or standard) against which decline in turnover is assessed is simply the prior corresponding period in 2019. For example, if an entity is seeking to demonstrate a decline in turnover for Q2 2020, the prior comparison period is simply Q2 2019.
If an entity satisfies the basic test, it does not need to consider the application of any alternative tests.
If an entity does not satisfy the basic test, the entity can consider whether there are any applicable alternative tests. Alternative tests are published by the Commissioner of Taxation by legislative instrument.
On 23 April 2020, the Commissioner of Taxation issued a legislative instrument with alternative tests for the following classes of entities:
- New businesses established after the relevant comparison period in 2019;
- Entities that made a significant acquisition or disposal between the relevant comparison periods;
- Entities that underwent a business restructure between the relevant comparison periods;
- Entities that experienced rapid growth between the relevant comparison periods of 50% in twelve months, 25% in six months or 12.5% in three months;
- Entities that have been affected by drought or natural disaster between the relevant comparison periods;
- Entities with irregular (but not cyclical) turnover; and
- Sole traders or small partnerships that experienced sickness or injury between the relevant comparison periods.
The alternative tests are intended to provide a more appropriate comparison period for assessing decline in turnover than the basic test. For example, if assessing whether an entity satisfies the decline in turnover for the April 2020 month, but the entity did not exist in April 2019, the entity can instead compare its April 2020 turnover against the average monthly GST turnover for January to March 2020.
There is limited opportunity for businesses to appeal to the Commissioner for an alternative test.
The Commissioner has interpreted his power to issue alternative tests as being strictly limited according to the following principles.
- Alternative tests can only be determined for a class of entities, not individual entities.
- Alternative tests must be created by legislative instrument.
- The Commissioner must be satisfied that the relevant comparison period under the basic test is inappropriate for the class of entities.
The Commissioner considers that a period will be inappropriate where there is an event or circumstance, whether internal or external to an entity, that is outside the usual business setting for entities of that class which results in the relevant comparison period in 2019 not being appropriate for the purpose of an entity in the class of entities satisfying the decline in turnover test.
As at the date of this publication, the alternative tests determined by the Commissioner have merely allowed for modifications to the prior comparison period (ie the standard) against which a decline in turnover must be assessed.
We expect that, if a business has broader structural concerns regarding the application of the JobKeeper scheme (outside the interpretation of tax concepts such as GST turnover), such concerns could only be addressed by changes to the JobKeeper rules by Treasury.
An employee will generally be an eligible employee for a particular fortnight if he or she was:
- On 1 March 2020:
- aged 18 years or over (or are otherwise aged 16 or 17 years and essentially independent);
- a full-time, part-time or long-term casual employee (being a casual employed on a regular and systematic basis during the period of 12 months); and
- an Australian resident (as defined in the Social Security Act 1991) or the holder of a Subclass 444 (Special Category) visa (being essentially New Zealand temporary visa holders); and
- employed by the entity at any time during the fortnight; and
- has given the employer a nomination notice and has not given any other employer a nomination notice (this is to prevent double dipping).
Unlike employer eligibility, which is assessed once at a point in time, employee eligibility is assessed on a fortnightly basis.
Some employees are excluded from the scheme. An individual will not be an eligible employee for a particular fortnight if he or she:
- is entitled to parental leave pay and the PPL period overlaps with the fortnight;
- received dad and partner pay during the fortnight; or
- was totally incapacitated throughout the fortnight and is entitled to worker's compensation in respect of a period that overlaps with the fortnight.
Under recent changes to the JobKeeper scheme, religious practitioners and registered religious institutions may also be eligible to receive JobKeeper payments.
The JobKeeper scheme is intended to operate on a 'one in, all in' principle, although the actual legal obligations underpinning this principle were not clear in the original rules.
The 1 May 2020 changes to the JobKeeper rules are intended to fix this issue, by requiring employers essentially to give notice to all their relevant employees of their intention to register for JobKeeper, and thereby giving them an opportunity to nominate for JobKeeper.
JobKeeper payments will be assessable income for the business, but payments to employees (even if made solely for the purpose of obtaining JobKeeper) should be deductible.
The tax character of any payment by an employer to its employees will generally be assessable income. Note that amounts withheld by the employer for PAYG purposes are counted towards the $1,500 minimum payment that employers must pay eligible employees each fortnight before receiving the JobKeeper payment.
We discuss the availability of various payroll tax concessions here.
A common misconception is that JobKeeper payments are made to employees. Rather, they are made to the employer, which is required (prior to even receiving the payment) to have paid each employee a minimum of $1,500 pre-tax to be eligible for the JobKeeper payment. It is inaccurate to describe this payment to the employees as a JobKeeper payment, particularly where it merely forms part of the employee's ordinary salary.
The Government has announced that changes will be made to the superannuation guarantee rules so that employers do not need to make superannuation contributions in respect of any amounts paid to an employee solely to satisfy the JobKeeper minimum fortnightly payment (ie that amount cannot be characterised as payment for work or services).
Here are three examples that we expect would illustrate how this is intended to work (subject to the rules when they are released):
- Superannuation contributions do not need to be paid for employees that have been stood down but are still being paid $1,500 a fortnight by the employer to satisfy the JobKeeper minimum payment condition.
- If an employee is still working and they are entitled to be paid $1,000 for their work over a fortnight, then the employer is expected to make superannuation contributions in relation to that $1,000. The employer is not required to make superannuation contributions for the additional $500 they would need to pay their employees to satisfy the JobKeeper minimum payment condition.
- If an employee is still working and the employee's wage for the work they performed in that fortnight is $2,000, then the employer is expected to make superannuation contributions in relation to that $2,000 (in the usual way).
The ATO has released a Practical Compliance Guideline that outlines how it will apply its compliance resources to schemes designed to obtain access to JobKeeper payments or increase the amount of JobKeeper payments received. Some examples identified in PCG 2020/04 that would likely attract the Commissioner's compliance resources include:
- deferring or bringing forward the making of supplies to decrease projected GST turnover;
- transferring assets within a group to reduce turnover; and
- manipulating the timing of a management fee or similar within a group to reduce turnover.
The PCG also gives examples of circumstances that would likely not attract the Commissioner's compliance resources, such as genuinely renegotiating service arrangements within a company in response to the impact of COVID-19 on the group's business.
While each case is different, the PCG indicates that the Commissioner will be most concerned in instances where the entity was not significantly affected by external environmental factors beyond its control, or the entity has sought to increase its entitlement in excess of that required to maintain pre-existing employment relationships.