Covid-19 Risk Audit: Could your business trade if you were struck down with the coronavirus?
As we know Covid 19 is causing significant financial disruption to businesses and the economy.
It is clear to us that, apart from financial matters, clients should also be urgently reviewing personal and business governance matters. We have prepared information circulars with respect to the following matters that would be significantly impacted if an individual were infected with Covid 19:
Business Governance (control of companies and how they execute lawfully binding agreements);
Self Managed Superannuation Funds; and
Enduring Powers of Attorney, Wills and Advanced Health Directives
This article is concerned with business governance and management issues; it asks business operators to consider how their company would operate if one or more of its Directors were struck down with the coronavirus and could not act.
Importantly, the guiding mind and will of a company is its Directors. They are not only responsible for the governance of the business, but they also have the power to deal with company property and to enter into legally binding agreements on behalf of the company. Inevitably, in small to medium business organisations the Directors are also the shareholders and they are all members of the same family and household.
If one or more Directors of an SME were to contract the coronavirus then there is a real risk that the affected Director(s) could not act for some time. Such an event would effectively paralyse the company and prevent it from properly negotiating or executing urgent transactions such as financial documents, real property dealings or accessing any Government relief that might become available.
Many entities, including financial institutions and government agencies, require companies to execute documents in accordance with s.127 of the Corporations Act 2001, which provides that a company may execute a document if it is signed by:
2 Directors of the company; or
A Director and a Company Secretary of the company; or
For a proprietary company if it has a Sole Director/Sole Secretary, that Director/Sole Secretary.
Unfortunately, if the illness of a Director or Company Secretary precludes them from complying with s.127 then the company may be unable to effectively execute documents, with the outcome that urgent business transactions may be unable to be completed for some time or at all.
Many of our clients have wrongly assumed that an attorney appointed under an Enduring Power of Attorney can simply assume the position of the afflicted Director. That is incorrect: a Director may only be appointed to a Company through the powers and processes contained within its Constitution or the Corporations Act 2001. A purported appointment of a Director that does not comply with the relevant power or process will be invalid.
In the current environment companies should be undertaking a risk assessment to determine if it could enter into legally binding transactions and trade the business in the event that a Director(s) contracted the coronavirus. Given the current circumstances, we do not think that companies or their Officers should assume that:
Either themselves or their business are immune from the Covid-19 virus;
They would have sufficient time to implement new measures in the event that one or more Directors were to contract the virus;
Their solicitors or accountants will be available to assist when advice is needed.
For those reasons we urge our clients to undertake a risk assessment and a review of their current governance/management arrangements. If, after completing that risk assessment, you have concerns that your company may be unable to act if one or more Directors fell ill, please contact us as a matter of some priority so that appropriate, cost effective measures can be put in place to manage that risk.
Please contact Nick Purcell or Denis Stephenson if you would like further information.
07 3234 3101
07 3234 3107