As New Zealand starts to get on top of the health aspects related to the Covid-19 crisis, public attention is turning more and more towards our economy and the hammering it has taken over the past few weeks.
The unfortunate reality for many businesses here and around the country is the tough times likely haven't even started yet. One is reminded of the famous Winston Churchill quote: "Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."
The Government has become acutely aware of this and, as our "go hard, go early" response is increasingly compared to other methods and results around the world, the Government is looking to step up its economic response.
In New Zealand, this largely means assistance for small to medium enterprises/businesses (SMEs) that make up a large part of our economy.
Of course, the greatest assistance right now for NZ SMEs would be to cycle down through the alert levels so that things can go back to "normal".
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Our Government's approach on alert levels and the restrictions that go with them to date does not, however, appear to account for their economic impact, only their respective health outcomes.
Instead, the Government has released a swathe of initiatives to assist SMEs in addition to the Wage Subsidy Scheme. Some of these include:
The Business Finance Guarantee Scheme
Under this scheme, the Government will guarantee 80 per cent of the credit risk for business loans up to $500,000. Normal bank lending criteria still apply, however the Government guarantee allows the banks to essentially overlook the current market conditions and the uncertainty surrounding Covid-19, and approve loans that in in other circumstances they may not have.
Mortgage Holiday Scheme
A large proportion of small New Zealand businesses are funded by mortgages over owners' homes. The ability to defer (NB it still must be paid later!) principal and interest payments for a six-month period will be a great relief for many such businesses.
The Business Debt Consolidation Scheme
This scheme can put a halt on business creditors recovering debts for up to six months. The scheme requires the business to meet certain criteria and also have the approval of at least 50 per cent in both number and value of the business' creditors. The intended effect of the scheme is that where a business is faced with potentially fatal prospects, it encourages an open dialogue between the business and its creditors. It also helps business remain in the control of its directors (rather than a liquidator or receiver) and gives creditors some comfort that any funds received from the business will not have to be repaid during the period.
Safe Harbour for Directors
Changes to legislation provide qualified relief for directors from their duties not to cause the business to trade recklessly (section 135 of the Companies Act 1993) or insolvent trading (section 136 of the Companies Act 1993). The changes see a relaxing of the normal duties. If, in good faith, the directors of a company believe the company will face liquidity (cashflow) problems over the next six months, but they consider (again in good faith) it is more likely than not the company will be able to pay its debts as they fall due within the next 18 months, and the company was able to pay its debts on 31 December 2019, the directors will not be in breach of the obligations of those relevant sections of the Companies Act if they continue to trade.
Tax Loss Carry-Back Scheme
Businesses expecting to make a loss in either the 2019/20 year or the 2020/21 year may be able to estimate the loss and use it to offset profits in the past year. In other words, they could carry the loss back one year and claim a refund. Much of the detail around this proposal is yet to come. However, it will be welcome news for those businesses staring at a certain loss in the 2020 financial year.
Changes to Tax Loss Continuity Rules
Again, most of the details on this scheme are yet to come, but the idea is that tax losses will be retained to a higher level of shareholding change than the current level.
This is by no means an exhaustive list, and many more Government initiatives are yet to come over the following months. One thing to note, however, is that aside from the wage subsidy scheme and perhaps the tax carry back scheme aside, none of the schemes mentioned are in any way a lolly scramble or put cold hard cash in the hands of business owners when they need it most. That approach is fine for now, in the early months it will only be those businesses who were stressed going into the crisis that will fall over. As the economic darkness gathers, however, and the economy tries to re-start, no doubt more will be required from the Government to assist good, solid businesses which have been struck by Covid-19.
•Simon Badger is one of the law column writers from Treadwell Gordon.