The government has moved to introduce new legislation to help companies facing insolvency due to the coronavirus pandemic to remain viable and keep people employed.
The new legislation gives directors of companies facing significant liquidity problems a ‘safe harbour’ from insolvency under the Companies Act, Finance Minister Grant Robertson said in a news conference on 3 April.
“A ‘safe harbour’ will help them [businesses] keep trading, rather than prematurely closing up, which will minimise disruption to the economy as much as possible,” Consumer Affairs Minister Kris Faafoi said in a statement.
The rules will also enable businesses affected by the pandemic to place existing debts into hibernation until they are able to start trading normally again, he said.
However, the proposed move to place existing debts into hibernation, to be known as a Business Debt Hibernation (BDH), would only happen with the agreement of 50 per cent of a business’s creditors.
The measures will also give the registrar of companies the power to temporarily extend deadlines imposed on companies, incorporated societies, charitable trusts and other entities under legislation.
At the same time, the new legislation will give temporary relief for business entities that are unable to comply with the requirements in their constitutions or rules because of COVID-19.
“These measures will support the Government’s work to cushion the economic impact for New Zealand and to support businesses and protect jobs and incomes,” Robertson said in a statement.
“We are announcing these decisions now to give businesses certainty that these measures are being worked through. We will be asking Parliament to agree to make some of these changes retrospective.
“While they will help increase certainty and provide practical assistance to business owners and directors, the changes must not be seen as a workaround for obligations to creditors and the responsibility of directors to act in good faith,” he added.
Robertson urged businesses to talk to their creditors and banks, and also reminded them that the government had a Wage Subsidy scheme in place as well as a Business Finance Guarantee Scheme, which can offer loans up to $500,000 over three years.
(Reporting by Praveen Menon; Editing by Shri Navaratnam; with Reseller News Staff)