As the spread of COVID-19 (coronavirus) increases, and a pandemic has been declared, the motor vehicle industry is being severely affected along with all other sectors of our economy. Businesses are being required to make urgent and difficult decisions regarding the safety of employees and customers, the closure of workplaces, employee entitlements and steps that can be taken to ensure business continuity, whilst managing the risks of the coronavirus spreading further.

There are certainly many steps available to dealerships to triage their future risk. One important area of review for dealers is to consider to what extent current insurance policies might respond to ease the economic effects of the coronavirus. Existing policies which may offer some relief to business include:

• Supply Chain Insurance – supply chain insurance may provide cover to dealers who suffer a loss due to disruption or delay in the receipt of products, components, or services from a supplier. With many automotive spare parts emanating from Chinese factories, this may affect the ability of some dealers to effective run their service workshops.
• Business Interruption Insurance – contingent (rather than direct) business interruption cover may offer relief for losses caused by a pandemic, particularly where there has been a very serious (or even catastrophic) impact.

If dealers have not already done so, they should be also considering the following:

• Developing and implementing a business continuity plan;
• Providing timely communications with workers and stakeholders;
• Implementing strategies for slowing the spread of the coronavirus and recommended steps in the workplace;
• Developing step by step guidelines to respond to a suspected case of the coronavirus and/or confirmed case of the coronavirus within a dealership;
• Understanding as an employer:
  – your work health and safety obligations;
  – your ability to stand down employees without pay;
  – advice on potential flexible work arrangements;
  – advice on employment and leave payments and entitlements;
  – advice on group interactions and travel arrangements.

Apart from the impact on the health of and well-being of all participants in the automotive industry, there will also be some business casualties. In particular, some dealerships may not survive the business interruption and downturn that will be caused by the coronavirus. Directors of dealership companies need to be mindful of their personal liability for insolvent trading and unpaid tax liabilities of the dealership.

A company is deemed to be insolvent when it cannot pay its debts as and when they fall due. This is generally based on a cash flow test and not an asset test. A director can become liable for the debts of a company if he or she allows a company to incur debts whilst the company is insolvent. The appointment of an Administrator to a company will insulate a director from any further potential claims regarding liabilities incurred by the company after that date.

Directors of a company that fail to meet a PAYG withholding or SGC liability by the due date will also become personally liable for a penalty equal to the unpaid amount.

Accordingly, in this unprecedented economic climate caused by the coronavirus, dealerships and their directors need to take active stops to mitigate the adverse business consequences that will flow from the coronavirus.

 

Evan Stents
Lead Partner, Automotive Industry Group, HWL Ebsworth Lawyers