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Companies Act Changes April 2020

The Government are proposing temporary changes to the Companies Act to help companies who may be facing insolvency due to covid-19, to remain viable and keep New Zealanders in jobs.

Whilst it is inevitable that some businesses will go into liquidation, it is hoped that the extra measures announced on 3 April 2020 will help some businesses continue during this period and provide some extra comfort for creditors.

Many companies who continue to trade over the next six months will face significant liquidity issues, so the Government is proposing a “safe harbour” for directors regarding their insolvency duties under the Companies Act, provided:

  • The company was able to pay its debts as they fell due on 31 December 2019 (solvent)
  • The directors continue to act in good faith - be cautious, act in the best interests of the company and continue to exercise reasonable care, diligence and skill

This announcement has been welcomed by the NZ Institute of Directors, who had petitioned the Government to temporarily pause personal liability for directors in relation to a company trading whilst insolvent, due to COVID-19.

The Government are also proposing a debt hibernation period allowing companies to place existing debt into hibernation until they start trading normally again, providing:

  • Directors actively speak to creditors
  • The company has the agreement of at least 50% of the business’s creditors
  • That directors do not dishonestly incur debt

Whilst these changes are designed to assist during this period of uncertainty, directors are not free to disregard their obligations under the Companies Act, including evasion of creditors.

Other proposed temporary changes include:

  • Allowing the use of electronic signatures where necessary due to COVID-19 restrictions
  • Giving temporary relief for entities that are unable to comply with requirements in their constitutions or rules because of COVID-19
  • Giving the Registrar of Companies the power to temporarily extend deadlines imposed on companies under legislation

It is hoped that directors will find these temporary changes more workable and encourage business continuity, rather than closure.

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