Marcus Ayres Discusses the Unintended Consequences of Easing Insolvency Laws During COVID-19

Marcus Ayers, Managing Director in Duff & Phelps’ Global Restructuring Advisory practice, based in Australia, was recently featured in In the Black’s August edition, discussing his views on the impact of COVID-19 relief measures. He helped reinforce the idea that quality advice is essential during these turbulent times. 

The introduction of a safe harbor defense had already helped to shift the balance of risk away from directors, providing a defense to insolvent trading if they are meeting certain criteria. Other industry experts along with Marcus warn that the additional relief provided to directors grappling with unprecedented business conditions could have unintended consequences.

Marcus said, “What I am most anxious about, however, is that the relaxation of these laws will cause some small and medium-sized enterprises to get themselves into a much worse position." 

Marcus believes this relaxation is a “red herring.” He stated that there are already ample laws allowing a director to trade in a company while it’s insolvent under the safe harbor provisions; however, these provisions require directors to get appropriate independent advice. 

He felt that despite being given some breathing space, directors still need to seek advice on their duties and planned actions. He additionally commented, “The safe harbor provisions were installed to ensure that the direct conflict that arises when a company is insolvent—that is, a director’s personal obligations vs. what’s best for the company and its stakeholders—was removed on the proviso that a director sought proper advice at the time. Just because that rule has been temporarily removed, it doesn’t make it any less important.”

Read the full article here.