The bankruptcy and clearing industry was surprisingly quiet during the pandemic. The pandemic was entrusted to the response of the government and the Reserve Bank, Covid-19.
It is said that this measure has created a “zombie” company, a company that is on the verge of bankruptcy but is floating with government support.
As the Covid-19 stimulus depleted, it was expected that bankruptcies, especially in the hospitality industry, would increase.
However, Chapman Tripp partner Michael Harper said the number of companies bankrupt or liquidated was down about 50% from the levels seen in 2019.
He said there were several factors in this.
One of the main drivers of this was the more flexible enforcement approach adopted by the Internal Revenue Service during the pandemic. This is because it usually applies to more clearings than the rest of the market as a whole.
“We understand that the Inland Revenue Department has signed something like 140,000 payment contracts that cover about $ 3.7 billion in debt.”
“I think the key indicator of bankruptcy is the Internal Revenue Service’s enforcement of claims for taxpayer defaults.”
He may suggest that the IRD’s recent application to liquidate the real estate investment firm Propeller Property Investments has returned to business as usual after easing enforcement early in the pandemic. Said.
According to Harper, the government’s business financial guarantee system also provided lasting support to businesses.
This scheme allowed SMEs to access up to $ 5 million in credit.
It ended a year ago, resulting in $ 2.8 billion lagging behind 3363 borrowers.
Harper said it’s hard to know when a company’s failure will begin to recover.
But history suggests that there was a delay of about three to four years between the economic shock and the wave of liquidation and bankruptcy, he said.
Necessary reforms
As bankruptcy and bankruptcy surges are imminent, Michael Harper said authorities will review and reform bankruptcy legislation to ensure that the process of closing a business or starting a turnaround runs as smoothly as possible. He said it was necessary.
He said Australia recently enacted a law encouraging New Zealand to adopt quick and cheap restructuring of SMEs.
The Australian regime has taken an “owner mode” approach. That is, a company with a $ 1 million debt was eligible to continue trading under the control of its owner with the approval of a small business restructuring practitioner.
The practitioner works with the employer to develop a restructuring plan, which is voted by the creditors.
“We have a gap [New Zealand] The law in it [local] Companies do not have an efficient, effective and inexpensive rehabilitation process. “
“For these directors, we will continue to trade until voluntary control or the creditor’s commitment is too high or fails because the creditor does not fully understand.”
After the Mainzeal and Debut Homes proceedings, Harper said large corporations still face their own challenges in restructuring and rehabilitation, given the duties of directors and the legal uncertainties surrounding bankruptcy transactions in corporate law. Said.
I joined a business group choir calling for a review of the law to articulate the director’s obligations regarding bankruptcy transactions.
The rise of proceedings funders was also in the “urgent need” of the review, he said.