The government has moved to extend its debt relief provisions for businesses by 10 months, meaning the scheme will remain open until 31 October next year.
The extension to the rules allowing affected businesses to put their debt on hold was made to help assist with the ongoing economic recovery from COVID-19.
“The government introduced the scheme earlier this year as part of relief measures aimed at cushioning the economic impacts of the pandemic,” Finance Minister Grant Robertson said. “The scheme allows businesses that meet the necessary criteria to place their existing debts on hold for up to seven months.
“This is intended to give businesses time to explore options for continuing to trade, when they might otherwise have been liquidated by their creditors,” he added.
However, Robertson stressed that debt hibernation was not designed to prevent companies with no realistic prospect of continuing to trade from going under.
“Safeguards are also in place to protect against abuse of the measure, including the requirement for creditors to vote on a business’s proposal,” he said.
According to Commerce and Consumer Affairs Minister David Clark, the scheme and its targeted potential to help prevent insolvencies translates into a market that is more able to retain jobs and maintain cash flow in the economy.
“Business debt hibernation gives some breathing space to businesses that are doing it tough,” Clark said. “It means when creditors start applying pressure, company directors have the support of a tailored mechanism to work through options with their creditors to find a way forward.”
In April, the government 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 was designed to give directors of companies facing significant liquidity problems a ‘safe harbour’ from insolvency under the Companies Act, Robertson said in a news conference at the time.
By May, a new package of measures introducing changes to insolvency and company law, which contained a range of measures to support business through the pandemic, was introduced in Parliament.
The Bill made changes to the Companies Act to help businesses facing insolvency due to COVID-19 to remain viable by placing existing debt into hibernation until they can start trading normally again.
It was also designed to give directors of companies facing significant liquidity problems due to COVID-19 additional confidence that they can keep trading by providing a ‘safe harbour’ for their insolvency-related duties under the Companies Act.