Law Society protests the fast tracking of COVID-19 debt and insolvency legislation

The New Zealand Law Society | Te Kāhui Ture o Aotearoa is protesting the fast tracking of COVID-19-related debt and insolvency legislation through parliament.

The New Zealand government first announced proposed amendments to the Companies Act 1993 in April to help businesses handle the impact of the COVID-19 pandemic. Amendments in the COVID-19 Response (Further Management Measures) Legislation Bill include “safe harbour provisions” related to the trading actions of the directors of select companies, and the business debt hibernation (BDH) scheme, which can temporarily shield a company from debts in the face of heavy liquidity problems.

However, the Law Society believes that things are moving too quickly for this legislation and that important concerns are not receiving adequate attention as there is little opportunity to obtain stakeholder input.

In particular, the bill needs “to be supported by comprehensive practical guidance, particularly for the small-to-medium businesses that make up the bulk of New Zealand’s business activity,” the Law Society said in a statement to the Epidemic Response Committee on 8 May.

“We are concerned the complexity of the proposed BDH scheme will mean it is effectively out of reach for the SME community and so will not meet the desired policy goals,” said Law Society spokesperson Charlotte McLoughlin.

The Law Society also said that directors’ compliance with the scheme may be hindered by the need to “make statutory declarations about matters that are inherently uncertain, when such declarations may not be necessary in any event.”

“If directors are not able to comply confidently, the uptake of the scheme will be limited,” McLoughlin said.

“A solution may be for a shorter and simpler (and so faster) process, aimed specifically at smaller entities, to be formulated. In any event, guidance on the BDH scheme should be provided to assist smaller entities to navigate the scheme,” McLoughlin said.

The Law Society pitched some further changes to the proposed legislation to address its concerns, such as a clearer draft of the safe harbour provision with regard to reckless trading and the incorporation of a statement of the regime’s statutory purpose.

“This would help directors to understand, clearly and with confidence, their obligations and what protection they have during the next 18 months,” McLoughlin said.