Queue outside Kiwibank in Whanganui during the lockdown. Photo / File
Queue outside Kiwibank in Whanganui during the lockdown. Photo / File
Brought to you by Treadwell Gordon
The Covid-19 pandemic, and the catastrophic effect it will have on businesses' ability to survive the crisis may create a lot of work for lawyers, notwithstanding our Prime Minister's invocation for us all "to be kind to one another".
Where money is at stake,the human condition does not lend itself to "take it on the chin". This will reveal itself most frequently in situations where bills are not being paid.
Recovery action will start unless sensible payment arrangements can be agreed. These agreements may well include a full payment at a discounted sum.
Business owners, if they can't arrange a payment plan, but still have the fortitude to fight on, and to see out a pressing creditor, may try to avoid or delay making payment if it will corrupt their chance of survival.
Survival means making sure there is enough in the tin to be able to pay staff their weekly pay cheque.
Business owners will, for the next foreseeable period, spend a disproportionate amount of time managing cashflow through haggling with creditors, dealing with their bank, accountants and lawyers.
They will also spend their time chasing their own debtors … many of whom will be in the same cash-strapped boat.
Such cash management effort is all-consuming, wearisome and totally unproductive. It comes at the expense of valuable time that could otherwise be spent in their business.
Those business owners would be better to look to the Government's Business Finance Guarantee scheme, rather than juggling jam jars and spinning stories to equally strapped creditors.
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Under this scheme the Government will guarantee up to 80 per cent of new bank loans to get those companies through.
This facility applies to business with more than $250,000 annual turnover. The guarantee is capped at $500,000 per business.
Importantly, the Government has relaxed the strictures it had placed on banks in the last years, which strictures had tightened the money being released into the market.
Richard Austin from law firm Treadwell Gordon. Photo / File
There can be no greater time than now for the banks to step up and make the business community as fully funded as common sense allows, less constrained by Reserve Bank restraints.
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Of course, the banks do have discretions to lend. It should not be thought businesses that were previously seen to be failing would somehow get a lifeline.
Applications to the banks need to be based on a proven pre-Covid-19 track record. One should give some words of caution here. The details of the bank schemes are not yet fully known.
Will there be a guarantee sunset date? If there is, would the loans have tight principal reductions? Where does the guaranteed loan rank in relation to other lending already in place with the business? Are the funds restricted to liquidity purposes only (ie paying existing bills rather than other capital expenditure)? Where do these new loans sit in terms of the Companies Act 1993 solvency test?
It is essential that businesses get cash moving through the system. Bills being paid provides for growing confidence in the business community.
Cash-strapped businesses should approach their bank in the first instance.
