• Cavell Leitch

COVID-19 - Further Proposals to Support Businesses

Last week the Government announced a number of proposals to temporarily assist businesses during the COVID-19 crisis by amending the Companies Act 1993 (the Act).


The changes, announced by Finance Minister Grant Robertson, have been designed to increase certainty, provide practical assistance to company directors, and to cushion to economic impact to businesses to further protect jobs, incomes, and the economy in general.


The proposals include the following:


Safe Harbour for Directors


This proposal provides a ‘safe harbour’ for directors in relation to decisions made under section 135 (reckless trading) and section 136 (duty in relation to obligations) of the Act. Over the next six (6) months, decisions under these sections will not result in a breach where:


  • Acting in good faith, and in the opinion of the directors, COVID-19 will cause significant liquidity problems for the company;

  • As at 31 December 2019, the company was able to pay its debts as they fell due; and

  • Acting in good faith, the directors consider that circumstances are such that the company will be able to pay its debts as they fall due within the next 18 months (for example, this belief may be as a result of positive forecasted trading conditions).


Business Debt Hibernation


When enacted, this proposal will provide businesses with a simple, quick and flexible process to place their existing debts on hold while COVID-19 continues to affect their ability to pay debts. The intention is to allow directors to retain control of their businesses and encourage directors to speak with their creditors to discuss their ability to pay their debts. The scheme also caters for new creditors and will provide certainty that if a business does in fact become insolvent, then the payments made to the new creditors during the debt hibernation period will not be able to be clawed back by a later challenge.


The key features of the proposal include:


  • Most entity types (including companies, trusts, and partnerships) will be able to take advantage of the proposal (registered banks, licensed insurers, non-bank deposit takers, and sole traders are not covered under this proposal).

  • Directors of the company will need to decide that their company meets a threshold to be eligible under the proposal. The Government is yet to release further details around what the likely threshold will be.

  • When the directors consider the threshold is met, they will notify their creditors that they are seeking a six-month moratorium. Once notified, there is an initial one-month moratorium while creditors consider the proposal put forward by the company.

  • During the one-month moratorium, creditors will be able to vote on whether they accept the proposal by the company or not. If 50% or more creditors (by number and value) agree to the proposal, then all creditors will be bound by the agreed terms (except employees) and the six-month moratorium and any other conditions will take effect.

  • If a proposal is declined by the creditors, there are still options available to the company directors, such as voluntary administration and liquidation, or a creditors’ compromise.

  • Companies can continue to trade and provide goods and services during the moratorium period (subject to any conditions imposed by the current creditors). Where the company makes payments to creditors during the moratorium period, provided the payments were entered into in good faith, at arm’s length, and were not intended to deprive existing creditors, then they are unlikely to be clawed back under the voidable transaction regime.

Other proposed changes


The Government also announced a number of other changes, they include:


  • Voidable transactions clawback period reduced – The clawback period will be reduced from two years to six months (where parties are not related).

  • Elctronic signatures to be accepted – the proposal includes amendments to legislation to allow for electronic signatures in security agreements where original signatures are currently required.

  • Giving the Registrar of Companies the power to extend timeframes – This proposal would give the Registrar the power to loosen timeframes around filing for certain governance matters such as the filing of annual returns or AGMS.

  • Relaxing requirements to comply with constitutions or rules – the proposal also includes temporary relief where an entity is not able to comply with its constitution or rules due to COVID-19. There has been limited detail around what this may entail but is likely to include provisions such as allowance for electronic meetings in circumstances where rules may only provide for in person meetings.


Where to from here?


At this stage, no timeframe has been released. The relevant changes to legislation are still to be drafted to reflect the announcements made by the Finance Minister, however the Minister has stated that he will be asking Parliament to apply the amendments retrospectively, meaning that once enacted, the legislation is likely to apply from the date of the announcement.


To what extent these proposals will be borne out in the final legislation remains to be seen, and the finer details will need close consideration. We will provide further updates once the text of the legislation is released.


Please contact us for assistance


We encourage our clients to contact us early if they have concerns about their obligations or how these proposals may affect their businesses.


Please contact our Business Team or Insolvency Team if you have any questions or concerns.


Mike Dickie - Business


Chris Newman - Business


Susan Bevin - Litigation


Kirsten Graham - Litigation

Holly Cassin - Litigation

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