COVID-19: Relief for Company Directors
About the Author:
Paul Wilton (editor)
CA with degrees in commerce, accounting and information technology. Paul worked overseas in the “Big 4” accounting firms and served as a director at Audit New Zealand before setting up his own consultancy. Author of A-Z of New Zealand Business Law, Paul has over 20 years of experience as a business owner and consultant. He joined FBA in 2004 and is totally committed to providing excellence in quality and value to our subscribers.
The Government has announced its intention to provide relief to Directors who may be liable for breaching the Law at this time.
The Companies Act 1993 deals with the Directors' duty of care to protect creditors and to ensure that the company does not trade while technically insolvent.
Section 135 Reckless trading:
A director of a company must not:
(a) agree to the business of the company being carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors; or
(b) cause or allow the business of the company to be carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors.
and
Section 136 Duty in relation to obligations:
A director of a company must not agree to the company incurring an obligation unless the director believes at that time on reasonable grounds that the company will be able to perform the obligation when it is required to do so.
ANTICIPATED RELIEF MEASURES
Under the proposed relief, a company would be able to:
continue trading and to assume new obligations over the next six months;
seek a moratorium on the payment of their debts (i.e. the debts would be placed in hibernation until the company is trading normally again); and
continue trading when otherwise this would be in breach of the Law.
This is not Law yet, but details will be provided in an FBA update if the relief measure are passed in Parliament.
FBA Editor
THE GOVERNMENT CONTINUES TO MONITOR THE MEASURES THAT THEY ARE TAKING IN RESPONSE TO COVID-19 AND THESE MAY BE CHANGED AT NO NOTICE, AS THEY SEE FIT. IT IS FAIR TO POINT OUT THAT WE ARE BUSINESS ADVISORS AND NOT LAWYERS. OUR ANSWERS ARE BASED ON OUR UNDERSTANDING OF THE SOMEWHAT LIMITED INFORMATION THAT HAS BEEN MADE AVAILABLE PUBLICLY AT THIS POINT.
The first and last thing that I will say about that in this article is this: There are many realistic scenarios that could pan out over the coming months, some much more positive than others, but if you prepare for the worst you will be well-placed to tackle whatever comes your way. Here goes…