Business Debt Hibernation scheme renewed

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The Government has announced that the business debt hibernation scheme will be extended through to 31 October 2021. Where the BDH scheme applies, it prevents most creditors from pursuing claims against a company for up to seven months.

Business Debt Hibernation (BDH)

The BDH scheme places a moratorium on the rights of creditors (excluding those with a GSA) to enforce claims against entities that meet the criteria of the scheme. The moratorium lasts for one month by default, but can be extended by a further six months if debtors come to an agreement with the majority of their creditors (both in number and value). Please click here and here to read our previous articles about BDH.

Extension of the BDH

BDH was due to end on Christmas Eve 2020, but on 1 December 2020, Finance Minister Grant Robertson announced the extension of the scheme through to 31 October 2021. The rationale for this extension is that, although the New Zealand economy is said to be recovering better than expected, there is more support required to keep businesses trading. The Government believes that extending the scheme will go some way to preventing insolvencies and protecting jobs.

Comments

The extension of BDH does not reflect widespread use of the scheme. It has been reported that only 43 entities have entered into BDH, with only 15 of these entities coming to an arrangement with their creditors in order to extend their period of protection to seven months. There are a number of reasons why the scheme may not have had a wide uptake, including the limited nature of the relief offered (payment of debts can only be deferred for seven months and cannot be compromised), and the cost of properly implementing BDH. It is possible however, that the existence of the scheme may have incentivised some creditors to come to other informal arrangements with their debtors, in order to prevent debtors from entering the scheme.

Around the same time that the Government introduced the BDH scheme, it also brought in a safe harbour scheme for directors from reckless and insolvent trading. The safe harbour exceptions have now come to an end, and there is a renewed focus on directors duties following the Supreme Court’s decision in Debut Homes.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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