Finance Minister Grant Robertson (Minister
) announced today that the Government will be introducing legislation to amend the Companies Act 1993 (Act
) to assist companies that are faced with the risk of insolvency due to COVID-19.
The Minister believes that these measures will support the Government’s existing efforts to cushion the economic impact to New Zealand and support businesses, jobs and income.
The details of the proposed changes are still to come, pending passage of the bill through parliament before enactment. Consequently, the proposed changes to the Act may be accepted, deleted or modified, such that the proposals outlined by the Minister today may not be entirely reflected in the outcome.
We summarise below the key takeaways from the Minister’s announcement:
Wynn Williams is a member of SCG Legal, a global network of more than 110 independent law firms with both legal and public policy practices serving businesses in all 50 U.S. state capital cities and the District of Columbia, as well as capital cities and major commercial centers in more than 50 countries. SCG Legal has developed a COVID-19 Global Resource Center, which is focused on up-to-date legal and public policy developments from more than 25 different countries and most U.S. States. To access it, visit scglegal.com/coronavirus-resources.
- Legislation will be introduced to parliament “as soon as possible” and will be retrospective to today, 3 April 2020.
- The temporary changes will include the following measures:
- Company directors facing significant liquidity problems as a result of COVID-19 will be granted a “safe harbour” from the insolvent trading set out in the Act for 6 months in order to encourage boards to keep trading and minimise disruption to the economy as much as possible.
- Enabling businesses affected by COVID-19 to place existing debts into hibernation, on agreement of at least 50% of their creditors, until they are able to start trading normally again. This will give businesses the time to talk to their creditors about prioritising paying some debts and deferring others for 6 months.
- Allowing the use of electronic signatures where necessary due to COVID-19 restrictions.
- Extending deadlines for annual meetings and returns.
- The Minister believes that these measures will also help to increase certainty and provide practical assistance to business owners and directors. However, he also noted that they must not be seen as a workaround for the obligations that businesses have to creditors or the responsibilities of directors to act in good faith.
- The Minister says that it is inevitable that some businesses are going to go into liquidation, but these measures provide an accessible and pragmatic means of helping some businesses to weather the storm in a way that does as little harm as possible to their creditors’ interests.