The Business Debt Hibernation scheme is now law, bringing help to those businesses that are vulnerable but still viable in these difficult economic times.
As of 16 May 2020, directors can begin a process that will allow their debts to be deferred for up to six months. There are rules to follow and qualifications that will limit some parties’ involvement. But the basic intent of the law will be achieved, as it provides some breathing space for companies that have been affected by COVID-19.
Although the Business Debt Hibernation scheme is proposed as a self-help system, it is unlikely to be easy to implement. One challenge facing directors will be their lack of familiarity with insolvency law. Another will be the inevitable human dynamics of the scheme. While the applicant has the advantage of debt deferral, the creditor has the corresponding disadvantage of waiting for debt to be paid.
There are 95 insolvency appointments for the month of May; 45% of these are in Auckland. Although Auckland continues to be represented disproportionately in insolvency numbers, it should be noted that many appointments are by the same shareholders. There can often be two or three liquidations within a group of companies.
The weekly count of insolvency appointments has gone up from 29 for the week ending 10 May, to 33 for the week ending 17 May. Although this is an increase, it is not a notable one. It is consistent with directors returning to their business issues rather than a prediction of the future.
The business services sector continues to lead insolvency appointments for the year beginning 1 April 2020 with 31 appointments. It is very likely that the providers of business services do not have significant business assets – so when insolvency occurs, ending the business by liquidation becomes the convenient option.
Close second is construction, with 23 companies in the sector facing a formal state of insolvency. Thirteen are in Auckland and Northland, six are in Canterbury and Marlborough, two in Waikato and one each in Wellington and Bay of Plenty.
Budget 2020 did not produce any real surprises. The government clearly showed it intends to help business as much as possible so the economy can become active again.
Bryan Williams (Accredited Insolvency Practitioner)
BWA Insolvency Limited
The place you go when Voluntary Administration can be used to help rebuild your business