Articles

In May 2020, non-essential services reopened for trading. New Zealand moved from Level 4 to Level 3 on 27 April 2020 and the drop down to Level 2 happened on 13 May 2020. The “new normal” at Level 1 started on 9 June 2020. Because of the Government assistance that has been provided to businesses, we anticipate that the economic effects of the Lockdown will be seen over a longer period of time than in previous economic slowdowns. Many businesses experienced a surge in trading activity when they reopened at Level 3 and another spike in revenue at the start of Level 2 but few businesses have seen consistent revenue week on week since reopening. The budget announcement was made…
There has been a lot of commentary around what the COVID-19 global pandemic is doing to countries’ economies. Some economists are predicting a global economic downturn to be the worst recession since the Great Depression and most are expecting this downturn to be worse than the GFC. Today, 14 May 2020, New Zealand is moving from Level 3 to Level 2 and a lot of businesses are re-opening for the first time since the Level 4 lockdown came into effect seven weeks ago. In the weeks and months ahead, we will find out what effect the lockdown has had, so now would be a good time to look at the NZ insolvency figures to April 2020 and how those figures…
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…
Businesses in New Zealand are facing challenging times. Directors of companies are pulled in all directions - employees to care for, bills to pay and creditors chasing them for payments. Directors are not alone in feeling the extreme levels of stress, fear and anxiety. Directors however should not now be prolonging the inevitable where they had no viable business pre Covid-19 and if post Covid-19 there is no reasonable prospect of the company recovering from the current circumstances. If circumstances are dire, the shareholders should be looking to appoint a liquidator to avoid debt increasing and further harming creditors. Liquidation does not necessarily mean the end of trading altogether. Often the business is sold and sometimes there is an opportunity…
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…
The regulation of insolvency practitioners has been welcomed by most, if not all, reputable insolvency practitioners and most of the matters covered in the Insolvency Practitioners Regulation Act 2019 relate directly to the practitioners. The Insolvency Practitioners Regulation (Amendments) Act 2019 made amendments to various related legislation, including the Companies Act 1993 (“the Act”). In this article we look at one particular amendment to the Act, which comes into force on 17 June 2020 and has a direct impact on the ability of company shareholders to appoint a liquidator in specific circumstances. Current Position: Generally speaking, there are two sets of circumstances in which the shareholders appoint liquidators of an insolvent company – • The company is insolvent, and the…
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…
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