Business Debt Hibernation Scheme
As for the safe harbours for directors discussed in this article, the Business Debt Hibernation Scheme (BDH) is intended to provide a platform for businesses to continue to trade through and out of the COVID-19 crisis. Under the BDH, debtor companies incorporated prior to 25 March may be able to have the benefit of a moratorium on certain creditors taking action against the company to recover debts and to also provide a platform for the company make proposals to its creditors. The BDH will be available until 24 December 2020 (or such later date as provided for in regulations).
Access into the BDH is for companies able to pay their debts as they fell due as at 31 December 2019. In addition, at least 80% of the directors must, in good faith, resolve to enter the BDH and those directors must also make a statutory declaration in respect of similar matters as the opinion under the safe harbours (i.e. the ability to pay debts as at 31 December 2019, the likelihood of facing significant liquidity problems as a result of the effects of COVID-19 on the company, and that it is more likely than not that the company will be able to pay its debts on or after 30 September 2021). Moreover, the statutory declaration must also set out the grounds for the directors holding those opinions. Directors may have regard to similar matters as under the safe harbour regime.
Where the above is met, the company enters into the BDH by giving a relatively simple notice to the Registrar of Companies (which includes, in short, that the board has agreed to enter the regime, the name of the entity, registered address and NZBN (if any)). A one-month moratorium on debts will then apply, which will prevent creditors from taking actions. The company must then give notice to all known creditors as soon as reasonably practical after giving the notice to the Registrar. This further notice contains more details and must include, in short, copies of the statutory declarations, the proposed arrangement (described to at least a high-level), details of amounts owing and how many creditors (including specific information in relation to the individual creditor that the notice is sent to), and other administrative matters.
During the one-month moratorium, the company will provide a further notice to creditors so that creditors can vote on a resolution to approve the proposed arrangement. Such further notice must include, in short, sufficient details of the proposed arrangements and the text of the resolution, among other things. If the resolution is passed by 50% of creditors (in both number and value of debts), then the moratorium will be extended by 6 months (although, the company may lose the benefit of this moratorium in certain situations).
The moratoriums will be binding on all creditors other than employees and certain secured creditors. In addition, parties to transactions with the company which are entered into during BDH will be protected from clawback actions by liquidators (provided certain requirements are met, such as, being in good faith and on an arm’s length basis and within the moratorium period or otherwise allowed under the proposal with creditors).
The above is only a high-level summary of BDH. The rules are complex and include specific technical requirements (including as to notices, voting, entry into BDH), exceptions, timeframes, possible requirements to provide further statutory declarations, specific provisions relating to secured creditors and lessors in certain situations, among other matters. There are offences created under the BDH. Accordingly, legal and accounting advice should be taken if the board is considering entering into BDH.
If you have any questions or would like advice in respect of any legal matter you are facing (whether related to COVID-19 or not), please contact your usual point of contact at Kemps Weir or contact us here.
Disclaimer: This publication should not be construed or acted on as legal advice. It is brief and general in nature. Specific advice should be sought.