Can an employer force their employee(s) to be vaccinated?

With the rollout of the COVID-19 vaccine this week, a big question on people’s minds (aside from, ‘when can I finally go overseas again?’), is whether or not an employer can force their employee(s) to be vaccinated.

The Fair Work Ombudsman has provided plenty of guidance on this topic.

Here is what you need to know:

1. There are currently no laws or public health orders in Australia that enable employers to require their employees to be vaccinated against COVID – the Government plans to have as many Australians vaccinated as possible, although vaccination is still voluntary;
2. Employers may encourage or recommend the vaccine to employees. At most, employers will be able to issue a direction for employees to be vaccinated, however, they will need to apply the ‘lawful and reasonable’ standard in doing so, which varies on a case-by-case basis, and depends on factors such as:
   • whether the direction is a reasonably practicable measure to eliminate risks to health and safety;
   • the nature of the work performed by employees; and
   • whether that work can be performed remotely.
3. While there is no single correct approach in assessing reasonableness, the coronavirus pandemic alone does not make it reasonable for an employer to issue a direction that employees get vaccinated.
4. Where an employer has issued a lawful and reasonable direction to be vaccinated and an employee complies, the employer may ask an employee to provide evidence of their vaccination.
5. Some employment agreements may contain terms relating to vaccinations. Employers and employees should check whether these terms extend to COVID-19 vaccinations and whether they comply with anti-discrimination laws.
6. If an employee refuses to be vaccinated, the employer could:
   • ask the employee for their reasons for refusing the vaccine; and
   • consider and query whether asking for any evidence in support of their refusal is lawful and reasonable in the circumstances.

Signing off remotely…. Execution of documents during the COVID-19 Pandemic

Execution by Corporations

Witnessing documents

1. the witness must observe the signatory physically sign the document in real time. This may require the camera to be adjusted to allow the witness to see both the face and hand of the signatory whilst signing;
2. the witness must attest or otherwise confirm the signature was witnessed by signing the document or a copy (such as a scanned copy or the original if posted to the witnesses following execution by the signatory);
3. be reasonably satisfied the document the witness signs is the same document, or a copy of the same document;
4. endorse the document, or the copy of the document, with a statement specifying the method used to witness the signature of the signatory and that the document was witnessed in accordance with the NSW COVID Regulations, such as:

Disclaimer

Did you Know?  The Small Business Restructuring Process has changed since the Exposure Draft

This one is for the insolvency law geeks!

It’s a little hard to find right now (at the time of writing, a compiled version of the Corporations Act isn’t available from either legislation.gov.au or Austlii), but the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 has commenced, introducing both the simplified liquidation process and Part 5.3B – perhaps better known as the “small business restructuring” or “debtor-in-possession” process – as a possible restructuring option for struggling businesses with fewer than $1 million in liabilities.

Some of you will have only read the regulations in their exposure draft form – and the exposure draft contained more than a few conceptual and practical difficulties (which discussed with Professor Jason Harris and Mark Wellard in an episode of Hearsay the Legal Podcast, which I encourage you to listen to here).

In the interest of being more optimistic about the use of the small business restructuring process (more than a month after its commencement, there has been just one appointment at the time of writing), I thought I would highlight some of the major improvements made to the process since the exposure draft:

• Contingent creditors are now admissible to proof in the restructuring, and can vote on restructuring proposals – but employee claims for entitlements and superannuation are no longer admissible (all payable employee entitlements must be paid when due to be eligible for restructuring);
• The circumstances in which a restructuring practitioner will be criminally liable under the regulation has been clarified. Before, if a restructuring practitioner prepared a certificate stating that the eligibility criteria for restructuring were met and the company was likely to be able to comply with its own restructuring plan, and the practitioner did not “make reasonable inquiries into… [and] take reasonable steps to verify the company’s business, property, affairs and financial circumstances”, the practitioner would be guilty of an offence.  This would have imposed wide-ranging but otherwise vague investigative obligations on restructuring practitioners, under threat of criminal sanction – which is not a feature of any other insolvency process, and which appeared at odds with the low-cost, proportional approach the restructuring process was intended to promote.

Now, the certificate is replaced with a declaration, and the practitioner only needs to “make reasonable inquiries” and “take reasonable steps” for a particular purpose: “assessing the accuracy and completeness of the information provided by the company in the restructuring plan and the restructuring proposal statement”.  The criminal liability is still extraordinary, and those investigative steps could vary widely between one appointment and another, but there is at least now some delimitation to the extent of the inquiries a practitioner has to make.

• The status of rights of property owners and lessors after a restructuring plan has been made has been clarified – the new subregulation 5.3B.29 now says that the rights of lessors and property owners are unaffected by a restructuring plan unless:
  • the plan provides for that right to be affected, and the owner/lessor votes in favour of the plan (a bit like a deed of company arrangement being binding upon secured creditors); or
  • the Court orders.

There are plenty of other changes as well – and things that should have changed but haven’t.  One of the latter things that comes to mind for me is the situation if the restructuring plan is not accepted.  Presently, the restructuring simply ends, the company remaining in the control of its directors, who are no longer protected from insolvent trading liability.  Should the company immediately be wound up?  The company is taken to be insolvent, from the day it proposed a restructuring plan to its creditors (see section 455A(2) of the Act), so control probably shouldn’t be handed back to the directors.  An automatic liquidation would also resolve some questions about the relation-back day for the company when it is wound up, given that the relation-back day is affected by whether the company was under restructuring “immediately before” it was wound up.

What do you think?  Have these changes made you more enthusiastic about small business restructuring?  Are there other changes that have been made – or haven’t been made – that are more important to you?  Tell us in our LinkedIn discussion.

Did you know… When is a deed delivered? 

Facts

Decision as to effectiveness of deed

• taking possession of the premises and spending time, effort and money to fit them out, (all done after execution but before exchange); and
• failing to expressly reserve their alleged position that the lease would not be binding on them until exchange of counterparts.

So what is needed to deliver a deed?

• Physical delivery is not required for a deed to be effective. The critical question is whether the party executing the deed has evinced an intention to be bound immediately.
• A deed can be delivered in escrow. The effect is that the deed is not recallable, but equally is not operative until a particular specified condition is satisfied.
• If the person who first seals the deed delivers it as an escrow, intending it to become his deed when and not before the other parties execute it, then upon the condition being fulfilled, the deed becomes effectual to give title as from its first delivery.
• In Xenos v Wickham, Blackburn J… stated the principles as follows:
  “no particular technical form of words or acts is necessary to render an instrument the deed of the party sealing it. The mere affixing the seal does not render it a deed; but as soon as there are acts or words sufficient to shew that it is intended by the party to be executed as his deed presently binding on him, it is sufficient. The most apt and expressive mode of indicating such an intention is to hand it over, saying: ‘I deliver this as my deed;’ but any other words or acts that sufficiently shew that it was intended to be finally executed will do as well. And it is clear on the authorities, as well as the reason of the thing, that the deed is binding on the obligor before it comes into the custody of the obligee, nay, before he even knows of it”.

Public Examinations

The Rules

• The chief mechanism by which liquidators and administrators are able to obtain information about a failing company is sections 596A and 596B of the Corporations Act 2001 (Cth) (Act).
• This mechanism is particularly important in the current environment, and enables an applicant to discover the truth of the circumstances connected with the affairs of a company. The purpose of public examination provisions were summarised by Mason JC in Hamilton v Oades (1989) 166 CLR 486 at 4896:

There are the two important public purposes that the examination is designed to serve. One is to enable the liquidator to gather information which will assist him in the winding up; that involves protecting the interests of creditors. The other is to enable evidence and information to be obtained to support the bringing of criminal charges in connexion with the company’s affairs…

• These provisions provide a powerful and useful tool for liquidators and eligible applicants, to summons company officers, or a party with information pertaining to a company’s affairs, history and management, to be examined under oath in Court.
• There are two different types of examinations an eligible applicant can apply for, a mandatory examination under section 596A of the Act, or a discretionary examination under section 596B of the Act.
• Mandatory examinations provide a mechanism whereby the Court must order “officers” of the company to be examined through the Court.
• Discretionary examinations may be brought against a much wider class of persons, whereby an application can examine a third party about information in relation to the company’s examinable affairs if that person has taken part in the examinable affairs of the company.  The kind of individuals ordinarily examined pursuant to this section include the company’s accountants, auditors, solicitors, insurers and directors’ spouses.

What is an examination and what can an examinee expect?

• An examination is generally an investigative exercise, and the process gives the applicant a potentially broad avenue to question an officer of the company or third party with knowledge of the examinable affairs of a company.
• The Act provides that the Court may order a transcript of the questions put to a person and the answers given by them to be signed by the examinee.
• The information obtained by an applicant, subject to claims for privilege, can be used to prosecute an examinee at a later time. Potentials claims include but are not limited to claims for insolvent trading, uncommercial transactions and unfair preferences.

Abuse of process

• The examination summons should be filed with a supporting affidavit which identifies the reason for the examination and why the party should be examined. The affidavit is confidential and is not available for inspection by the proposed examinee without a Court order.
• The person applying for an examination summons bears an obligation to make full and frank disclosure of all matters, (both favourable and unfavourable) which might affect the orders sought. If the application does not satisfy these thresholds, the orders for examination are liable to be set aside.
• Examples of abuse including examining a witness to destroy their credibility, using the examination process to obtain a forensic advantage or making an application which cannot be characterised as being for the benefit of the company or creditors’.
• It is important that applicants ensure that examinations are conducted for a proper purpose, otherwise they risk the application being considered an abuse of process liable to be set aside. They should ensure that an examinee is not oppressed by the procedure or unfairly disadvantaged.

How can we help

• The benefit of an examination process depends on many factors, including what can be achieved from the examination process and the potential claims the company may have.
• If you have received a summons for public examinations or consider you are an eligible applicant to apply for a public examination, you should talk to an experienced insolvency lawyer to seek legal advice.

Summary of PEXA’s ‘Property Now’ report for October 2020

Property Exchange Australia (PEXA), Australia’s online property exchange network, has released its ‘Property Now’ report for October 2020.

PEXA conducts approximately 75% of all transfer settlements across the country, settling 20,000 property transactions per week, and consequently provides an excellent snapshot of property market data and trends. Here’s some important insights from the most recent report:

• After falling in the early part of 2020, property settlements have recovered to be up 8% in 2020.
• Refinancing settlements are up 27%, having peaked at a 70% growth rate in June. Some refinancing may have been influenced by consistent advice the RBA governor Dr Lowe issues that mortgagors should seek out better deals by negotiating with their bank and go elsewhere if denied.
• PEXA reports that residential property values are down 9% in NSW and 14% in Victoria.
• Commercial property values are down 14% in NSW for the first 9 months of the year.
• A signficiant shift occurred in lending from non-major banks to major banks for new mortgages and refinances in most states. For example, June 2020 was the first month in more than two years in which the major banks outperformed smaller lenders in refinancing.

Furthermore, Treasury has reported that Australia has emerged from recession with a 3.3% increase in real GDP during the September quarter and that 80% of the 1.3m Australians who lost work or had working hours reduced to zero during the start of the pandemic are now back to work.[1] If this trend continues, we could see further upward trends in the property market.

[1] https://www.abc.net.au/news/2020-12-02/australia-september-quarter-economic-growth-gdp-figures/12934336, https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/speeches/national-accounts-september-quarter and https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/transcripts/interview-lisa-millar-news-breakfast-abc-1

Insolvency Relief Extension

On Sunday 6 September the Federal Government announced extensions to existing insolvency relief programs and measures that were enacted in March 2020. This new relief is in response to the ongoing COVID-19 pandemic and extends relief until 31 December 2020, replacing measures that were due to expire 25 September 2020.

The proposed regulations will bring into effect temporary measures aimed at holding off insolvency processes for businesses currently experiencing financial stress.

These measures include:

1. Insolvent trading: directors are excused from personal liability for trading whilst insolvent for debts taken on in the ordinary course of the company’s business. Importantly this relief measure does not remove statutory or common law directors’ duties
2. Statutory demands: increase to the threshold required to issue a statutory demand remains in place at $20,000 instead of $2000. The timelines for responses to statutory demands is 6 months instead of 21 days.

Some commentators have remarked that these changes could bring about extensive debts for tax payers by burdening the Fair Entitlements Guarantee scheme that pays out employee entitlements when the insolvent company is no longer able to. Others have remarked that the process merely moves the yardstick down the road giving rise to a class of dead but trading entities. Federal Treasurer Josh Frydenburg describes the measures as a ‘regulatory shield’ required to help businesses through this difficult stretch, which is notably more extreme in Victoria under level 4 lockdown measures.

Whichever view one holds, the effects of this shift to inhibit traditional insolvency processes is clear. There has been a large reduction in companies entering into external administration, down 51% on last year and also a large reduction in voluntary administration appointments, which are down 55% on this time last year.

The possibility of a severe New Year’s hangover for many businesses looms as a result of these changes.  One can’t help wonder, are we just delaying the inevitable?

A Zombie (Company) Apocalypse

We’ve all at some point been asked, or at least considered, the question: What would you do in a zombie apocalypse? Well, the year is 2020, and for many business owners and insolvency practitioners, the question is no longer so far-fetched.

The insolvency regime: pre and post-COVID

There are typically around 8,000 insolvencies in a given year, however that number is unsurprisingly much lower this year. ASIC data shows that insolvency activity was down 33% in April 2020 and 45% in May 2020, compared to the same time last year. Australian Restructuring Insolvency and Turnaround Association (ARITA) COVID-19 Issues Survey found that approximately 60% of participants had significantly lower appointment/engagement activity when compared to the same period last year.

Government measures and stimulus packages designed to help businesses struggling during this time include:

• The JobKeeper subsidy, which was recently extended for a further 6 months to 28 March 2021;
• Changes to statutory demands, bankruptcy notices and the moratorium on liability for insolvent trading; and
• A mandatory code of conduct for commercial landlords and tenants;

Zombie Companies and the Insolvency Cliff

While these measures were designed to be a lifeline for businesses during the pandemic, the reality is that these schemes have created a wave of ‘zombie’ firms or companies. These are the businesses which were struggling before the pandemic and would likely have failed, which are now being artificially kept afloat as a result of these measures.

The Australian Restructuring Insolvency and Turnaround Association (ARITA) estimates that at least 20% of Australian businesses trading through the pandemic may be in the position where they would otherwise be trading insolvent, if it weren’t for the temporary legal measures and financial support. In ARITA’s June 2020 COVID-19 Issues Survey, nearly 40% of all respondents reported seeing an increase in zombie companies as a result of the current economic and policy circumstances.

This begs the question – what will it look like for these zombie companies when the measures come to an end? 42% of participants in the ARITA survey belived we are very likely to see a major spike in insolvencies once JobKeeper and other protections come to an end, with many insolvency practitioners predicting an ‘insolvency cliff’ at the expiration of these stimulus measures.

The 6-month extension JobKeeper does not rule out the possibility that further extensions to other schemes may be announced, prolonging the existence of these zombie companies. We will inevitably see a large number of these zombie companies, already teetering on the edge pre-COVID, collapse once these stimulus measures come to an end, whenever that may be. Only time will tell whether the insolvency practitioners, ASIC and businesses will be equipped to deal with a potential wave of zombie companies.

The outbreak of COVID-19 has been a test of government response, infrastructure, public cooperation and resilience. However, it is also a test of the effectiveness and scope of ‘force majeure’ clauses in a number of legal agreements, and its ability to be enlivened as a result of the pandemic.

What is a force majeure clause?

A force majeure (French for “superior force”) clause is a contractual tool, used to address the non-performance of the parties’ obligations, generally under unforeseen circumstances beyond the reasonable control of the parties (called the force majeure event). In the event a force majeure event occurs, leading to non-performance of obligations under the contract, the effect of the clause may be to suspend the contract, excuse non-performance, or in the case of prolonged force majeure events, terminate the contract from the date of the event.

The scope of a force majeure event

Unlike the common law doctrine of frustration (which can apply even if the contract contains no force majeure clause), force majeure clauses are a creature of contract. Its effectiveness and scope will depend on the way in which the clause is drafted and in particular, the way in which the force majeure event is defined. Contracts may provide a general description of the force majeure event (e.g. ‘circumstances beyond the reasonable control of the parties’) or set out a long list of events which will constitute force majeure events. For example, the force majeure clause of major online retailer, The Iconic, lists the circumstances outside their reasonable control as including, “lightning, fire, flood, extremely severe weather, strike, lock-out, labour dispute, act of God, war, riot, civil commotion, malicious damage, failure of any telecommunications or computer system, compliance with any law, accident (or by any damage caused by such events)”.[1]

Many force majeure clauses do not contemplate health-related events, such as viral outbreaks, epidemics and/or pandemics – many focus on natural disasters, wars and acts of terrorism.  These contracts will be tested during the COVID-19 pandemic, as it becomes difficult or impossible for the parties to perform their obligations as a result of travel restrictions, quarantine measures and other government interventions.

COVID-19 – a force majeure event?

Whether or not a viral outbreak such as COVID-19 is considered a force majeure event turns on the particular force majeure clause in question. Force majeure clauses that exhaustively define force majeure may not include pandemics, and may mean that a contract is not capable of termination or suspension on this basis – or may not be capable or termination or suspension until the contract is affected by something that is listed (such as compliance with laws, like the soon-to-be legislated ban on gatherings of more than 500 people).

On the other hand, a force majeure clause that defines the force majeure event more generally (‘circumstances beyond the reasonable control of the parties’), is more likely to capture COVID-19 related disruptions.  In cases where there is doubt about whether the force majeure clause will apply to the current disruptions affecting the contract, parties may wish to proactively renegotiate the terms of the contract, temporarily altering the parties’ obligations under the contract in light of the outbreak.

The future of Force Majeure clauses

The outbreak of COVID-19 is the first world event in a long time that has so broadly affected businesses and trade, and which has caused businesses to actually look at the force majeure clauses in their contracts.  Some businesses will be surprised or disappointed to learn that those clauses might not give them the protection they expected.  However, we predict that force majeure clauses in future contracts will be drafted to include epidemics and pandemics, learning from the lessons of current events.

[1] https://www.theiconic.com.au/terms-of-use/

In a study of judgments on insolvent trading from 2004 to 2017, there are no instances where a director successfully argued an insolvent trading defence

This article presents findings from a study of thirty nine judgments between 2004 and 2017 concerned with a director’s ‘positive duty’ to prevent insolvent trading under s 588G of the Corporations Act 2001 (Cth) (the Act).[1]

Under s 588G of the Act, a company director in Australia can be held liable for misconduct including when a company incurs a debt while insolvent or causes a debt to be incurred that causes insolvency and there were reasonable grounds to believe that company was, or would become, insolvent by incurring that debt.[2]

The article builds on an earlier study, and as such adopts the methodology of that earlier study, which reported on cases between 1970 and 2004. Further, it provides background data for an updated review of new Safe Harbour reforms.

Here are a few of the highlights:

– Directors were found liable in 71.8 percent of judgments’ reflecting a similar percentage (74%) as the earlier study. There was no percentage difference between Federal and State judgments in finding directors liable.

– The average compensation award across 21 judgments was $846,739.41 and the median less at $410,592.69.[3]

– About two thirds of cases were brought by liquidators but only one third of cases which led to judgment were brought by creditors.[4]

– Directors argued a defence in one third of the cases, with timing of the state of insolvency being the key issue before the court.[5]

–  In thirteen judgments s 588H defences were argued and none were successful.[6]

– In the earlier study defences were argued 63% of the time, in the current it fell to only 33% of the time.[7]

– A majority of judgments resulted in less than $500,000 in compensation being awarded, and less than $200,000 was awarded in one third of judgments.[8]

– Overall, a total of almost one third of the judgments were appeals disincentivising the trend towards litigation funding by the increased costs associated with appeals.[9]

– Concerning Safe Harbour reforms, the findings of the study suggest that the ATO is likely to play a ‘pivotal role’ in ‘shaping the jurisprudence around insolvent trading’ as a significant creditor and because inappropriately accrued ATO debts will prevent access to Safe Harbour defences.[10]

– The article suggest that the Safe Harbour reforms may make it ‘harder for liquidators to credibly threaten insolvent trading’.[11] In McLellan v Carroll [2009] FCA 1415 a director was relieved of liability under s 1317S of the Act after an initial finding of liability that rejected their defence under s 588H(3). Mr Carroll had obtained advice from a business restructure specialist with relevant industry experience and had taken active steps to expand sales and fix problems.[12] The authors claim that this set of activities provides guidance for the course of action appropriate in meeting Safe Harbour goals.[13]

– 30.8% of actions leading to judgments were brought by creditors but that only 41.7% of those judgments led to findings of director liability, suggesting that creditors brought less meritorious claims.[14]

– The article acknowledges limitations in its findings that are caused by the prevalence of private negotiations. Further, it highlights that debts of under $200,000 are less likely to be pursued in courts limiting the scope of its findings.

[1] Stacey Steele and Ian Ramsay, ‘Insolvent Trading in Australia: A Study of Court Judgments from 2004 to 2017’ (2019) 27(3) Insolvency Law Journal 1.

[2] Ibid, 14.

[3] Ibid, 16.

[4] Ibid, 20.

[5] Ibid, 25.

[6] Ibid.

[7] Ibid.

[8] Ibid.

[9] Ibid.

[10] Ibid, 31.

[11] Ibid.

[12] Ibid, 32.

[13] Ibid.

[14] Ibid.