Who will be eligible
All businesses, apart from sole traders, insurers, banks and non-bank deposit takers will be eligible for BDH.
Why Business Debt Hibernation
The scheme has several aims, the primary aim being to help prevent businesses impacted by COVID-19 from facing insolvency.
The scheme also has several secondary aims, which we think will have a positive impact on the business community beyond Covid-19 – these include:
Key Features - What We Know So Far
We expect the Government to announce the finer details of the BDH scheme shortly – but here is what we know so far:
Effect of Entering BDH
The effect of successfully passing a BDH proposal is a further six-month moratorium period where the business can continue trading as normal, without fear of existing debts being enforced against it. The proposal becomes binding on all existing business creditors, apart from employees.
What is unclear at this point is how guarantors’ liability for business debts will be affected by the BDH process and six-month moratorium period. We expect there will be a moratorium on enforcing guaranteed debts against related parties, as occurs in Voluntary Administration – watch this space for further updates on guarantees once more information comes to hand.
There will also be an additional benefit for creditors - any payments and transactions within the six months the business is in BDH will be exempt from the voidable transactions regime (assuming they are made in good faith, on arm’s length terms and without the intent to deprive the existing creditors of the business). This exemption will not, however, apply to parties related to the business.
If a business does not enter Business Debt Hibernation, creditors are free to enforce their debts in the normal course, including liquidation and debt recovery processes.
If your business is struggling with the impacts of COVID-19, we encourage you to ask for help and engage professional support early. We have teamed up with Venture Taranaki to provide a joint SME grant to assist businesses. Find more about this here.
To read the full Government press release, please click here.
For more information on COVID-19 and its impact on your organisation, please contact our Civil Litigation and Commercial Specialists (Troy Wano, Lauren Wallace, Rebecca Eaton and Nic Croft) on 06 768 3710.