“Minimising outgoings and maximising available cash – whether by government stimulus or otherwise – will be paramount,” she submitted.

“Negotiations are taking place with landlords and financiers, with a lot of attention also being given to active supply chain management. Proactive use of insolvency processes is being considered in some cases, but not widely actioned at this stage.”

When it comes to preserving cash, Hamilton Locke partner Nicholas Edwards said there are numerous options available to businesses, “including the use (if appropriate) of section 524 of the Fair Work Act to stand down employees without pay, apply for and take advantage of the JobKeeper subsidy if the company and employees are eligible, apply for relief from the ATO and engage with banks and lenders to seek relief (be it deferral, reduction in payment or a payment holiday)”.

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But he added that while certain measures are available, it “often doesn’t impact the ongoing accrual of liabilities for the company”.

“These debts will need to be dealt with at a future time, especially as companies emerge from this period of hibernation. It is likely at that time, as companies consider how to emerge and what the business should look like, that there will be an increased use of ‘strategic’ voluntary administration and deeds of company arrangements to restructure,” he outlined.

“The other important factor during the period of hibernation and beyond, will be the availability of alternative capital solutions for businesses and from our discussions many of these funds have significant ‘dry powder’ ready to deploy.”

Is more reform needed?

When asked if new reforms are needed specific to the insolvency and restructuring space – on top of the already-announced economic stimulus measures, Ms O’Brien said that much of the insolvency law infrastructure is already there and can be “adapted to suit”.

“More clarity is still needed around the detail and mechanics of various recently announced changes, including in relation to the stimulus measures, employees, leases, and simplifying capital raising,” she said.

Mr Edwards backed this, saying that businesses and lenders must focus on the impact of the new measures in conjunction with the existing frameworks under the Corporations Act.

“There is a lot in there, and I do not think the full implications have been worked through yet (especially as not all the relevant legislation has been enacted yet). At the end of the day there will be no silver bullet to deal with the outstanding liabilities that continue to accrue – that is going to be the biggest issue that will need addressing once the economy comes out of hibernation,” he said.

‘Safe harbour’ provisions

The six-month holiday from insolvent trading, together with the extension of time to comply with statutory demands introduced by the government, is a “positive step”, Mr Edwards advised, but added that he is advising clients that “in order to comply with ongoing directors’ duties and to ensure the company survives any period of mothballing or hibernation directors should still consider and avail themselves of the broader safe harbour provisions”.

“This will involve engaging a safe harbour adviser and developing and implementing a plan of action to achieve a ‘better outcome’ than an immediate liquidation or administration. This time also allows directors to critically evaluate their business models and to think about strategic and structural changes that may be required to ensure a viable business emerges,” he explained.

Ms O’Brien said: “I absolutely take my hat off to directors, particularly listed company directors, who are trying to keep businesses alive and do the best thing by their stakeholders in unprecedented circumstances.”

“We are still very much in a ‘wait and see’ phase: many businesses will be able to survive two to three months of significantly reduced revenue, but obviously the longer it continues, the more likely businesses will fail.”

The other big thing to watch, Mr Edwards added, is how the changes to the FIRB regime will impact potential solutions involving foreign investors that many businesses may otherwise have sought out or relied upon.

“Timing will likely be the biggest issue,” he said.

Who will survive?

According to Ms O’Brien, “You would have to expect that bad businesses are less likely to find their way out on the other side of the COVID-19 crisis, and that good businesses are more likely to come through.”

Mr Edwards agreed, saying that the new government measures will not of themselves save bad businesses.

“Bad businesses may be able to survive the hibernation period, but once the economy gets going again such under-performing businesses will need to address the fundamental problems that were there pre-COVID-19 (be it poor corporate structure, over-leverage or a fundamentally flawed business model),” he mused.

“If those issues cannot be addressed then I would expect them to enter into a formal insolvency process (be it voluntary administration or liquidation).”