On 24 September 2020, the Supreme Court released its long-awaited decision in the case of Debut Homes Ltd (In Liquidation) v Cooper [2020] NZSC 100.

The main issue was whether a director was in breach of his directors’ duties under the Companies Act 1993 (Act) by continuing to trade against the background of an insolvent or nearly insolvent company.

Summary

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, qualifying businesses may seek up to $10 million under the Paycheck Protection Program (PPP) for funding payroll and business expenses. The US Small Business Administration (SBA) guarantees the loans, and the full principal amount of the loans and any accrued interest may qualify for loan forgiveness. For many businesses, PPP loans have served as a lifeline during the COVID-19 pandemic.

On Friday afternoon the government announced temporary changes it intends to make to the Companies Act 1993 (the Act) to assist companies facing financial stress during the COVID-19 pandemic.

Summary of proposals

The proposed changes include:

As mentioned in Hesketh Henry’s article “COVID-19: Insolvency law changes” (https://www.heskethhenry.co.nz/insights-opinion/covid-19-insolvency-law-changes/), Grant Robertson has announced that the Government will soon be introducing legislation to make temporary changes to the Companies Act 1993 (“Act”) to help companies facing insolvency due to the COVID-19 pandemic.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act or the “CARES Act.”The legislation includes a historic $2 trillion aid package intended to stabilize the U.S. economy and provide disaster relief aid to American citizens and businesses impacted by the COVID-19 pandemic. The emergency aid package, which is by far the largest in American history, contains many provisions focused on providing relief. Among these are certain temporary amendments to Title 11 of the United States Code (the “Bankruptcy Code”).

INTRODUCTION

In times of unprecedented market uncertainty, assessing financial exposure to your counterparties is essential. Volatility in the commodities markets and a public health crisis create the perfect storm for financial distress for companies in nearly every industry. Risk is inherent in business and that risk is heightened when you are dealing with a company in financial distress. Managing these risks begins with knowing your counterparties and understanding your legal position with respect to those counterparties.

Countries across the world are actively taking measures to stem the spread of COVID-19 by encouraging and, in some cases, forcing social distancing. One of the most common measures employed so far is the closing of non-essential stores, bars and restaurants for several weeks, if not longer. Several large retailers, such as JCPenney, Ross Stores, Kirkland’s Inc., Marshalls and TJ Maxx, have announced store closings for two weeks in efforts to help stop the spread of COVID-19.

We have prepared the following tips for businesses to guide them through the current circumstances. Urgent advice should be sought where cash flow problems are arising, or where contractual obligations may not be able to be met. The best protection is preparation.

Talk to the people you deal with

Check in with the people you do business with regularly. This will include:

During these uncertain times, bankruptcy courts across the country remain steadfast in their commitment to serve the public and provide critical relief to debtor companies and their many constituents, including employees, lenders, and other parties in interest. To address public concern about COVID-19 and to protect all parties, many bankruptcy courts have issued general orders implementing procedures and adopting protocols that balance public health and safety with parties’ need for emergency relief from the court.