At JB Morrison Lawyers we have been monitoring developments in the ongoing COVID-19 pandemic and national lockdown.

The Government on 3 April 2020 announced that they would introduce new legislation to amend the Companies Act 1993 to incentivise companies to stay open during this COVID-19 emergency.

The measures include:

  • Giving directors of companies facing significant liquidity problems because of COVID-19 a ‘safe harbour’ from insolvency consequences under the Companies Act;
  • enabling businesses affected by COVID-19 to place existing debts into hibernation until they are able to start trading normally;
  • allowing the use of electronic signatures where necessary due to COVID-19 restrictions;
  • giving the Registrar of Companies the power to temporarily extend deadlines imposed on companies, incorporated societies, charitable trusts and other entities under legislation; and
  • giving temporary relief for entities that are unable to comply with requirements in their constitutions or rules because of COVID-19.

In order to place debts into hibernation, the company would have to have the agreement of 50% of the business’s creditors. This is intended to allow prioritisation of payment of the company’s debts and deferral of others.

The intention is that these changes will be temporary and encourage business to stay open to weather this crisis.

Other parts of the Companies Act, such as the duty to act in good faith and punishment of those who incur debts dishonestly, will not be changed.

We anticipate that this legislation will be passed urgently, in a streamlined law-making process – the COVID-19 Response (Urgent Management Measures) Legislation Bill was passed into law in one day.

Grant Robertson, in his oral briefing, indicated that the legislation would be retrospective to the date it was announced.

We expect that more guidance will be released as the legislation is introduced.

This is not a license to act recklessly, as key duties remain in place.  Directors should be cautious and get advice about how these changes affect their duties based on the particular circumstances of their company.

For More Information

JB Morrison’s commercial lawyers have experience and knowledge spanning a range of industries and specialisations, we work closely with you to share that knowledge to your advantage, and are well placed to help you assess your business needs during this time.

Our firm is available to assist you remotely during the lockdown; please call 04 472 0020 or contact our business and commercial lawyers for more information:

COVID-19 - Debt Hibernation - JB Morrison Lawyers