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COVID 19 Temporary companies act changes announced

On 3 April, the government announced they will be introducing temporary new legislation to help businesses facing insolvency remain viable, with the aim of keeping New Zealanders in jobs.

Insolvency Measures

The proposed measures are not yet law, so some details are scant. The government has announced these temporary changes will come into effect from the date of announcement, but detailed legislation is unlikely to be available before the end of April.

Key changes the government announced are:

  • the introduction of a “safe harbour” from directors’ duties under sections 135 (reckless trading) and 136 (duty in relation to obligations) of the Companies Act 1993;
  • the ability for businesses to place existing debts into hibernation with the consent of a majority of creditors until they are able to start trading normally again;
  • permitting the use of electronic signatures where necessary due to current restrictions;
  • giving the Registrar of Companies the ability to temporarily extend deadlines imposed on companies, incorporated societies and charitable trusts (for example, annual return filing deadlines);
  • giving temporary relief for entities who cannot comply with requirements in their constitutions or rules because of COVID-19.

 

Safe Harbour

It is envisaged directors’ decisions to keep on trading, as well as decisions to take on new obligations, over the next 6 months would not result in a breach of duties if:

  • in the good faith opinion of the directors, the company is facing or is likely to face significant liquidity problems in the next 6 months as a result of the impact of the COVID-19 pandemic on them or their creditors;
  • the company was able to pay its debts as they fell due on 31 December 2019; and
  • the directors consider in good faith that it is more likely than not that the company will be able to pay its debts as they fall due within 18 months (for example, because trading conditions are likely to improve or they are likely to able to reach an accommodation with their creditors).

 

COVID-19 Business Debt Hibernation

Key features of the proposal are:

  • directors will have to meet a threshold before being able to access the Business Debt Hibernation regime and putting a proposal to their creditors;
  • creditors will have a month from the date of notification of the proposal to vote on it, with the proposal going ahead if 50% (by number of creditors and value of debt) agree; and
  • there will be a one-month moratorium on the enforcement of debts from the date the proposal is notified, and a further six-month moratorium if the proposal is passed.

The Government has stressed “these changes will not mean that directors are free to disregard the consequences of their actions for the next six months. Other protections in the Companies Act, such as those addressing serious breaches of the duty to act in good faith and punishing those who dishonestly incur debts, will remain in place”.

The proposals are subject to change between now and when Parliament is able to enact them, and businesses should take care prior to the enactment of any legislation.

If you have any queries, please contact your usual advisor. If you are a creditor concerned about the ability of debtors to repay their debts, or are a business needing assistance with managing creditor obligations, Baker Tilly Staples Rodway have a team of experts who can assist.

Please note, the information contained in this article is correct at the time of publication, but under ever evolving conditions, information may change.

DISCLAIMER: Our team is dedicated to helping you continue with business as usual, as much as you can. Information on government help is changing constantly and within hours of articles being added, the specifics may be out of date or only partially accurate. While we endeavour to keep this website accurate and current, our top priority is providing our clients with dedicated and relevant personal advice. If you need specific and up-to-date information, please seek help from your usual advisor directly.

No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.

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