New rules to allow COVID-19-affected businesses to temporarily 'hibernate' debts

News rules will allow COVID-19-affected businesses to temporarily place existing debt into "hibernation" until they are able to start trading normally again, with the agreement of 50 percent of their creditors.

Finance Minister Grant Robertson said on Friday that changes will be made to the Companies Act to help companies facing insolvency - or being unable to pay money owed - due to COVID-19 so they can keep New Zealanders in jobs.

Businesses will have to prove that they have been affected by COVID-19, the same way the Government's wage subsidy scheme is only applicable to businesses that can prove a 30 percent loss in businesses because of the virus. 

The legislative change would also include allowing the use of electronic signatures where necessary due to COVID-19 restrictions, and also allow for deadlines imposed on companies, charitable trusts and other entities to be extended.

Parliament may not be able to get together again soon, if the lockdown is extended beyond the initially planned four weeks, and Robertson said the Government will tackle that issue as it comes.

"These measures will support the Government's work to cushion the economic impact for New Zealand and to support businesses and protect jobs and incomes," Robertson said.

"We are announcing these decisions now to give businesses certainty that these measures are being worked through. We will be asking Parliament to agree to make some of these changes retrospective."

He said while the measures will give businesses owners certainty and assistance, the changes "must not be seen as a workaround for obligations to creditors and the responsibility of directors to act in good faith".

The Government will be watching to ensure the changes don't result in owners and directors disregarding the consequences of their actions for the next six months.

"Other protections in the Companies Act, such as those addressing serious breaches of the duty to act in good faith and punishing those who dishonestly incur debts, will remain in place," Robertson said.

He urged businesses to talk to their creditors and banks, and also reminded them of the Business Finance Guarantee Scheme launched this week, which can offer large loans with the Government guaranteeing 80 percent of the risk and banks 20 percent.

The scheme allows businesses with annual revenue between $250,000 and $80 million to apply to their banks for loans up to $500,000, for up to three years. It will offer a total of $6.25 billion in loans to New Zealand businesses.

Businesses can also apply for the wage subsidy scheme, which has so far paid out more than $4 billion to more than 15 percent of the population who have been affected by the economic impact of the coronavirus.