Insolvency and COVID-19

Under the Companies Act directors can be held personally liable for company debts if the company continues to trade while insolvent.  A company is deemed insolvent if liabilities exceed assets, or if the company cannot pay its debts as they fall due.

The government is concerned that because of the risk of personal liability some directors may decide to put their company into liquidation during COVID-19, rather than “ride out the storm” and continue to trade.  This would have the effect of worsening the country’s economic situation and increasing unemployment.

On April 3rd the government announced plans to introduce legislation to make changes to 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 include:

  • giving directors of companies facing significant liquidity problems because of COVID-19 a ‘safe harbour’ from insolvency duties under the Companies Act
  • enabling businesses affected by COVID-19 to place existing debts into hibernation until they are able to start trading normally again
  • 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
  • giving temporary relief for entities that are unable to comply with requirements in their constitutions or rules because of COVID-19.

To read the full announcement click here.

The COVID-19 crisis will change business post lock down. Company directors and business owners must ensure their business remains viable in the medium to long term.

Contact if you need assistance to identify post COVID-19 opportunities and threats, update your business strategy, revise your cashflow forecasts, proactively secure funding, prune unnecessary costs, and/or improve business efficiencies.

 “It is not the strongest or the most intelligent who will survive but those who can best manage change”  Charles Darwin

“Change brings opportunity” Nido Qubein

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