Risk management

The directors of a company have all the powers to decide what will be done, when it will be done and how – but with that power goes the responsibility to the company and its shareholders, to the company’s creditors and last, but not least, to themselves. The Responsibility to Others As a director, whether that be as the sole director of a small company or one of many in a large company, you have duties imposed on you under legislation, such as the Companies Act 1993 (“the Act”), and the company’s constitution. In any circumstances, you must firstly comply with the duties imposed by legislation, which are set out in sections 131 to 138A of the Act. Your first…
On 3 April 2020, the Government announced that it would be making changes to the Companies Act 1993 to provide insolvency relief for businesses affected by COVID-19. Yesterday, 5 May 2020, the first reading of the COVID-19 Response (Further Management Measures) Legislation Bill) took place. That bill introduces, amongst other measures: Reducing the voidable transaction and voidable charge period for non-related parties to six months (Schedule 2) The safe harbour provisions for directors (Schedule 3) The COVID-19 business debt hibernation (Schedule 4) Extensions to the periods mortgages and rent can be in arrears before default notices can be issued and enforcement action can be taken under the Property Law Act 2007 (Schedule 14) Both the Safe Harbour provisions and the…
A survey carried out in 2017 by Franchising New Zealand identified the fact that New Zealand had, at that time, the highest proportion of franchises per capita in the world. With around 630 franchise brands, it was estimated that they made up about 7% of the small businesses in New Zealand, employed over 124,000 people and contributed $27.6 billion to the New Zealand economy, plus an additional $11.1 billion in motor vehicle sales and $7.4 billion in fuel sales. We could not find any more recent figures, but which ever way you look at it, franchises make up a significant portion of businesses in New Zealand. As with other business models, there have been individual franchisees fail before Covid-19 came…
With the upheaval being caused to many SMEs by the Covid-19 lockdown and the potential for many of those SMEs to fail, the risk to people who have provided personal guarantees (PG’s) for company debts increases. The support packages for companies being provided by the Government and the major trading banks is good news for the employees, because of the 12-week wage subsidy package, and for those businesses that can meet bank lending requirements to access the business finance guarantee scheme or possibly can use the debt hibernation and tax packages. But the position for those companies that have other significant overheads and possibly were loss making startups or were already struggling, and for the individuals involved with those companies…
Government Resources:https://treasury.govt.nz/news-and-events/newshttps://www.beehive.govt.nz/release/further-measures-support-businesseshttps://www.beehive.govt.nz/release/business-finance-guaranteehttps://www.companiesoffice.govt.nz/news-and-notices/insolvency-relief-for-businesses-impacted-by-covid-19/An Australian perspective: Australian Covid-19 Insolvency Law changes: article here The Legal Perspective:We share general notes from Lowndes Jordan on:• Leases • The Government's Insolvency Response • Force Majeure/Frustration The following articles from Stace Hammond also provide insight on key topics:• Director duties • Implications for commercial contracts • Lease rent abatement • Enforceability of guarantees • Proposed Companies Act changes And the following article from Dentons Kensington Swan also provide insight on:• Relaxing insolvency related director duties These articles provide a summary of the tax relief measures:• Anthony Harper Tax Relief Measures: • IRD• NZ HeraldWage Subsidy:The COVID-19 Wage Subsidy is available to employers, contractors, sole traders or people who are self-employed. More information is found here• This…
There are many very small companies in New Zealand, where the sole director and shareholder is also the sole employee, or a couple are the directors and shareholders and one is the sole employee. These companies don’t have some of the issues faced by bigger companies in the normal course of business, such as dealing with employees and paying wages, but do have to deal with suppliers and clients and maintain workflow and profitability. In this article, we look at a couple of the issues facing very small companies and how the Covid-19 lockdown period could provide a chance for review. Objective Assessment: One of the problems for the directors of these very small companies is that they can get…
The Government is introducing legislation to change the Companies Act to help businesses facing insolvency due to COVID-19 to remain viable, with the aim of keeping New Zealanders in jobs. The temporary changes are outlined here A safe harbour is granted to directors of solvent companies, who in good faith consider they will more than likely be able to pay its debts that fall due within 18 months. This would rely on trading conditions improving and/or an agreed compromise with creditors. It essentially provides certainty to third parties of an exemption from the Insolvent transaction regime. The changes allow directors to retain control and encourage directors to talk to their creditors and will if needed enable businesses which satisfy some…
It has been widely predicted that the effect of Covid-19 on businesses, and the individuals involved with those businesses as owners and employees, is going to be widespread. Despite the Government support rolled out to date, many are worried about possible redundancies and the predicted failure of many businesses. In this article we look at what can be done to survive the lockdown, what effect the lockdown could have on new insolvency appointments during the lockdown period, and what the flow on effects could be, once the lockdown ends. We will also consider the opportunities available to businesses so that they survive the lockdown. Surviving the Lockdown: The Government and banks have provided avenues of financial support for individuals and…
The rush to closedown our offices and shift to working from home is now over for most of us. We hope that everyone was able to do what they needed to. Business goes on but in a different way to what we are used to. Perhaps there is an opportunity to take stock of the situation?Many of our clients have faced complete shutdowns of their businesses and we are now looking forwards to assisting them with cashflow planning for the next month or so, and then how to restart their businesses once the lockdown is over.There is a base level of government support available at the moment for employees, contractors etc, and likely bank support to work through for solvent…
We are all responding to the various impacts of Covid-19 containment measures over the past days. The Government has ordered wide ranging travel and event restrictions although it is important to note the restrictions apply to people and not goods and services. NZ is in the early stages of the coronavirus outbreak but many small and medium-sized businesses are already feeling its effects on cashflow to which will be added impending cost increases such as the 1 April increase in the minimum wage. From the commentary we have seen it is possible that our summer has insulated us from the worst of the virus to date, however that could change as we move into colder temperatures. It is also likely…
New Zealand's construction sector, has a string of serious issues that bedevil the industry. These problems are not just confined to the major construction companies themselves. They are having a seriously detrimental impact on the fabric of trade suppliers and sub-contractors that bind the industry together. Underpinned by Auckland and Canterbury’s buoyant growth builders should be comfortable. So, why are increasing numbers of construction companies collapsing and going into receivership, declaring insolvency or being faced with the prospect of liquidation? A Grim Roll Call While some firms continue to struggle dealing with leaky building and council compliance regimes, much of this problem can also be sheeted home to New Zealand construction firm’s apparent willingness to take on too much risk…
Benjamin Franklin said, “There are only two certainties in life – death and taxes”. Whilst failure to pay the second shouldn’t lead to the first, it can cause significant problems for individuals, as outlined in a recent Court decision. Nicola Joy Dargie was sentenced to two years six months imprisonment for failing to pay PAYE deducted from employees’ salary to the IRD. Ms Dargie’s explanation for the non-payment of $740,000, which occurred over a period of 10 years, was that she had withheld the tax payments from the IRD to keep her employees in a job. It is a practice that we encounter on a reasonably regular basis in liquidations - directors using the amounts they have deducted from their…
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