Schedule 12 Safe harbour provisions relating to outbreak of COVID-19

s 138B

Schedule 12: inserted, on 16 May 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).

1 Purpose of schedule

(1)

The purpose of this schedule is to give to directors of companies that are facing significant liquidity problems because of the effects of the outbreak of COVID-19 more certainty about their duties when—

(a)

agreeing to the business of the company being carried on or causing or allowing the business of the company to be carried on; and

(b)

agreeing to the company incurring obligations.

(2)

However, it is not a purpose of this schedule to facilitate the ability of a company that has no realistic prospect of continuing to trade or operate in the medium or long term to defer a decision to enter into liquidation to the detriment of its creditors.

Schedule 12 clause 1: inserted, on 16 May 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).

2 Overview of schedule

(1)

This schedule applies in relation to actions of directors of certain companies during safe harbour periods.

(2)

Subclause (1) is only a guide to the overall scheme and effect of this schedule.

Schedule 12 clause 2: inserted, on 16 May 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).

3 Interpretation

In this schedule, unless the context otherwise requires,—

action includes omission

commencement date means the commencement date of section 138B

company in BDH means a company to which the protections in Part 5 of Schedule 13 apply

Ministers means the Minister of Finance and the Minister of the Crown who, under the authority of a warrant or with the authority of the Prime Minister, is responsible for the administration of this Act, acting jointly

reaching a compromise or other arrangement includes a proposed arrangement being approved by the company’s creditors under Schedule 13

safe harbour period has the meaning set out in clause 5.

Schedule 12 clause 3: inserted, on 16 May 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).

Application of safe harbour provisions

Heading: inserted, on 16 May 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).

4 Companies to which safe harbour provisions apply

(1)

Clauses 6 and 7 apply to a company (including a company in BDH) if,—

(a)

as at 31 December 2019 (or any later benchmark date prescribed in regulations for a new safe harbour period), the company was able to pay its debts as they became due in the normal course of business; or

(b)

the company was incorporated on or after 1 January 2020 but before 3 April 2020.

(2)

However, clauses 6 and 7 do not apply to a company that is—

(a)

a registered bank within the meaning of section 2(1) of the Reserve Bank of New Zealand Act 1989:

(b)

a licensed insurer:

(c)

an NBDT within the meaning of section 5 of the Non-bank Deposit Takers Act 2013:

(d)

a qualifying counterparty within the meaning of section 122A of the Reserve Bank of New Zealand Act 1989:

(e)

a company incorporated on or after 3 April 2020:

(f)

a company of a class prescribed in any regulations made under clause 9.

(3)

In addition, clauses 6 and 7

(a)

do not apply in the circumstances, or to the transactions, prescribed in any regulations made under clause 9; and

(b)

cease to apply if conditions prescribed in any regulations made under clause 9 are not satisfied.

Schedule 12 clause 4: inserted, on 16 May 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).

5 Meaning of safe harbour period

(1)

In this schedule, safe harbour period means—

(a)

the initial safe harbour period; and

(b)

if regulations are made under clause 10(1)(b), the new safe harbour period.

(2)

The initial safe harbour period means the period that starts on 3 April 2020 and ends—

(a)

on the close of 30 September 2020; or

(b)

if regulations are made under clause 10(1)(a), on the close of the date to which the period is extended.

(3)

The new safe harbour period means the period prescribed in the regulations made under clause 10(1)(b).

Schedule 12 clause 5: inserted, on 16 May 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).

Safe harbour provisions

Heading: inserted, on 16 May 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).

6 Safe harbour relating to reckless trading

(1)

This clause applies to the following actions of a director of a company taken during a safe harbour period:

(a)

agreeing to the business of the company being carried on in any manner:

(b)

causing or allowing the business of the company to be carried on in any manner.

(2)

The actions of the director do not breach section 135 if, at the time of taking them, the director, in good faith, is of the opinion that—

(a)

the company has, or in the next 6 months is likely to have, significant liquidity problems; and

(b)

the liquidity problems are, or will be, a result of the effects of COVID-19 on the company, its debtors, or its creditors; and

(c)

it is more likely than not that the company will be able to pay its due debts on and after the date in subclause (3).

(3)

For the purposes of subclause (2)(c), the date is—

(a)

30 September 2021; or

(b)

any later date prescribed by the regulations.

(4)

For the purposes of the opinion required by subclause (2)(c), the director may have regard to—

(a)

the likelihood of trading conditions improving:

(b)

the likelihood of the company reaching a compromise or other arrangement with its creditors:

(c)

any other matters the director considers to be relevant.

(5)

In this clause, regulations means regulations made under clause 10.

(6)

See clause 4, for companies to which this clause applies.

Schedule 12 clause 6: inserted, on 16 May 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).

7 Safe harbour relating to section 136 duty

(1)

Subclause (2) applies to a director of a company—

(a)

who, during a safe harbour period, agrees to the company incurring an obligation; and

(b)

who, at the time of agreeing to the company incurring the obligation, is, in good faith, of the opinion that the company has, or in the next 6 months is likely to have, significant liquidity problems.

(2)

For the purposes of section 136, the director has reasonable grounds to believe that the company will be able to perform the obligation when it is required to do so if the director, in good faith, is of the opinion that—

(a)

the liquidity problems are, or will be, a result of the effects of COVID-19 on the company, its debtors, or its creditors; and

(b)

it is more likely than not that the company will be able to pay its due debts on and after the date in subclause (4).

(3)

However, subclause (2) only applies if the company incurs the obligation in the safe harbour period.

(4)

For the purposes of subclause (2)(b), the date is—

(a)

30 September 2021; or

(b)

any later date prescribed by the regulations.

(5)

For the purposes of the opinion required by subclause (2)(b), the director may have regard to—

(a)

the likelihood of trading conditions improving:

(b)

the likelihood of the company reaching a compromise or other arrangement with its creditors:

(c)

any other matters the director considers to be relevant.

(6)

In this clause, regulations means regulations made under clause 10.

(7)

See clause 4, for companies to which this clause applies.

Schedule 12 clause 7: inserted, on 16 May 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).

Miscellaneous

Heading: inserted, on 16 May 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).

8 Burden of proof

A person who wishes to rely on a provision of this schedule in a proceeding for, or relating to, a breach of section 135 or 136 has the burden of proving that the provision applies.

Schedule 12 clause 8: inserted, on 16 May 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).

9 Regulations relating to companies, etc, to which safe harbour provisions apply

(1)

The Governor-General may, by Order in Council made on the recommendation of the Ministers, make regulations that prescribe classes of companies, or classes of transactions or other circumstances, for the purposes of clause 4, including providing for either or both of the following:

(a)

for clause 6 or 7, or both, to apply only if conditions prescribed in the regulations are satisfied:

(b)

for clause 6 or 7, or both, to cease to apply if conditions prescribed in the regulations are not satisfied.

(2)

Before recommending the making of regulations under subclause (1), the Ministers must have regard to—

(a)

the provisions of clause 1 (which relates to the purpose of this schedule); and

(b)

the effect of the regulations on—

(i)

the creditors of companies that have significant liquidity problems; and

(ii)

the integrity of corporate insolvency law.

(3)

Different matters may be prescribed in respect of different classes of companies, transactions, or other circumstances.

(4)

See also clause 10 (for regulations prescribing a benchmark date).

Schedule 12 clause 9: inserted, on 16 May 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).

10 Regulations relating to safe harbour periods

(1)

The Governor-General may, by Order in Council made on the recommendation of the Ministers, make regulations that—

(a)

extend the initial safe harbour period until no later than 31 March 2021:

(b)

provide for clause 6 or 7, or both, to apply for a new safe harbour period—

(i)

of no more than 6 months; and

(ii)

that ends no later than the close of 30 September 2021.

(2)

The powers in subclause (1)(a) and (b) may each be exercised once only.

(3)

However, the Governor-General may, by Order in Council made on the recommendation of the Ministers,—

(a)

revoke regulations made under subclause (1) (wholly or in part):

(b)

amend regulations made under subclause (1) to reduce the period of an extension or a new safe harbour period.

(4)

The Ministers must not recommend the making of regulations under subclause (1) unless the Ministers—

(a)

have had regard to the provisions of clause 1 (which relates to the purpose of this schedule); and

(b)

are satisfied that the extension or new safe harbour period is—

(i)

necessary or desirable to address the effects of COVID-19; and

(ii)

no longer than is reasonably necessary to address the matters that gave rise to it.

(5)

Regulations made under subclause (1)(a) may prescribe a date for the purposes of clauses 6(3) and 7(4), but that date must be no later than 31 March 2022.

(6)

Regulations made under subclause (1)(b) may do either or both of the following:

(a)

prescribe a benchmark date under clause 4(1)(a), being a date that is—

(i)

no earlier than 30 June 2020; and

(ii)

no later than the date that is 3 months before the start of the new safe harbour period:

(b)

prescribe a date, for the purposes of clauses 6(3) and 7(4), but that date must be not later than 18 months after the start of the new safe harbour period.

(7)

Subclauses (5) and (6) do not limit subclause (1).

Schedule 12 clause 10: inserted, on 16 May 2020, by section 3 of the COVID-19 Response (Further Management Measures) Legislation Act 2020 (2020 No 13).