As the COVID-19 situation unfolds, we’ve gathered all the relevant information you and your business will need here - And we’ll be updating it as soon as new information comes to light.

Economic Support Package

The first wave of the NZ Government’s Economic support package was released on 17 March 2020. You can get a detailed outline here.

Since then, some amendments have been announced:

• The $150,000 cap to the Wage Subsidy has been removed.

• New businesses and high growth business are now eligible - they just need to demonstrate the revenue loss assessment against a similar period (for example a 30% loss of income attributable to COVID-19 in March 2020 compared to January 2020).

• The scheme will be extended to cover charities, non-governmental organisations, incorporated societies and post-settlement governance entities.

• All rent increases will be frozen and the Government is looking to introduce measures to protect tenants from no-cause evictions during the lockdown.

• The Government and the Banks have negotiated to provide mortgage holders a six month payment holiday. While this means you’ll pay nothing during the period, you’ll still be accruing interest, which will increase the size of your loan. This was announced on 24 March 2020 and it’s now up to the banks to roll it out.

• Short-term credit facilities will be provided to cushion the financial distress on solvent SME’s affected by the COVID-19. These facilities are limited to $500,000 per loan and will apply to firms with a turnover of between $250,000 and $80 millon per annum. The loans will be for a maximum of three years and expected to be provided by the banks at competitive, transparent rates. The Government is underwriting 80% of the credit risk related to these loans to encourage the banks to make the facilities available. Again, this initiative was announced on 24 March 2020 and the banks will roll this out.

More guidance for Employers on the Wage Subsidy - Read more on our blog here.

wage subsidy - frequently asked questions

BUsiness finance guarantee scheme

The Government has launched a Business Finance Guarantee Scheme for small and medium sized businesses, to protect jobs and support the economy. Under the scheme, businesses with annual revenue between $250,000 and $80 million can apply to their banks for loans up to $500,000 for up to three years. To encourage banks to extend credit to more businesses, the Government is guaranteeing 80% of the risk associated with these loans, while will be provided at competitive market interest rates.

These loans are subject to a normal lending process, administered by NZ’s major trading banks, who are also responsible for all lending decisions. Details of the loan application processes and requirements are available on the individual bank websites. However, we are seeing fairly consistent information requirements across all of the banks for these loans. You will need to provide the following with your application:

• 2020 Financial statements - If these are unavailable, you’ll need management accounts from your accountant;

• Business Plan;

• Business Continuity Plan specifically addressing COVID-19 and the impacts on your business;

• Cashflow Forecast for 12-18 months;

• Cashflow analysis showing cash requirements on a daily or weekly basis for 4-6 weeks; and

• Personal statement of position.

If you need a loan, get in touch with us as soon as possible - there will be significant demand for assistance with applications.

These loans can only be used to help with your businesses’ current and upcoming operating cash flow needs, including things like rent and staff expenses. The loans are not available to fund capital assets or projects, dividends, refinancing of existing debt advanced before 16 March 2020, or for excluded activities.

The loans are available until 30 September 2020.

More information on the Business Finance Guarantee Scheme, including FAQ’s, is available here.

WHat if i can’t meet existing obligations?

The banks are actively working on support for their customers. If you want to see what your bank is offering, here are links to all of the major banks’ COVID-19 Support pages:

ASB Westpac ANZ BNZ Kiwibank

Our banking partners tell us the easiest and most effective way for you to get in touch is through their business manager or by sending a secure email through your bank’s internet banking site.

insolvency relief for businesses impacted by covid-19

On 3 April 2020, the Government announced proposed changes to the Companies Act to keep businesses facing insolvency due to COVID-19 viable.

The temporary changes include:

• Giving directors of companies facing significant liquidity problems because of COVID-19 a ‘safe harbour’ from insolvency duties under the Companies Act;

• Enabling businesses affected by COVID-19 to place existing debts into hibernation until they can start trading normally again;

• Allowing the use of electronic signatures where necessary due to COVID-19 restrictions;

• Giving the Registrar of Companies the power to temporarily extend deadlines imposed on companies, incorporated societies, charitable trusts and other entities under legislation; and

• Giving temporary relief for entities that are unable to comply with requirements in their constitutions or rules because of COVID-19.

Safe harbour

This change provides a safe harbour from sections 135 and 136 of the Companies Act. Under section 135 a company director is potentially exposed to personal liability for allowing a company to trade in a way which could create a substantial risk of serious loss to creditors. Under section 136, a director could be exposed if he or she agrees to the company incurring an obligation that it could not reasonably be expected to be able to period. These changes will be implemented on the following terms:

Directors’ decisions to keep trading and to take on new obligations over the next 6 months won result in a breach of duties if:

1. In the good faith opinion of the directors, the company is facing or is likely to face significant liquidity problems in the next 6 months as a result of the impact of the COVID-19 pandemic on them or their creditors;

2. The company was able to pay its debts as they fell due on 31 December 2019; and

3. The directors consider in good faith that it is more likely than not that the company will be able to pay its debts as they fall due within 18 months (for example, because trading conditions are likely to improve or they are likely to able to reach an accommodation with their creditors).

This scenario effectively relies on trading conditions improving and/or an agreed compromise with creditors. It essentially provides certainty to third parties of an exemption from the insolvent transaction regime. The changes allow directors to retain control and encourage directors to talk to their creditors and will, if needed, enable businesses which satisfy some minimum criteria to enter into a debt hibernation scheme with the consent of creditors.

More information on the safe harbour provision for directors is available here.

covid-19 business debt hibernation

The Government has introduced a COVID-19 Business Debt Hibernation regime as an amendment to the Companies Act 1993. The regime is intended to:

• Encourage directors to talk to their creditors with a view to putting together a simple proposal for putting the business into hibernation;

• Allow for the directors to retain control of the company, rather than passing control to an insolvency practitioner;

• Provide certainty to new creditors that they won’t have to repay any money they receive, so as to encourage businesses to continue transacting with businesses in Business Debt Hibernation;

• Be simple and flexible so that it can be enacted quickly, and businesses can readily apply it to their circumstances without having to obtain legal advice.

Key features of the proposal are that:

• Directors will have to meet a threshold before being able to access the Business Debt Hibernation regime and putting a proposal to their creditors;

• Creditors will have a month from the date of notification of the proposal to vote on it, with the proposal going ahead if 50% (by number and value) agree; and

• There will be a one month moratorium on the enforcement of debts from the date the proposal is notified, and a further 6 month moratorium if the proposal is passed.

Business Debt Hibernation would be binding on all creditors other than the entity’s employees and would be subject to any conditions agreed with creditors. If the creditors reject the proposal, the directors would still have the range of existing options available including trading on, entering voluntary administration and appointing a liquidator.

While a business is in Business Debt Hibernation it would be able to continue to trade, subject to any restrictions agreed with creditors as a condition of entering into it.

In order to encourage businesses to continue to transact with a company that has entered Business Debt Hibernation, it is proposed that any further payments, or dispositions of property, made by the company to third party creditors would be exempt from the voidable transactions regime. This exemption would not extend to related parties.

This means anyone continuing to trade with the company will not have to worry about a liquidator seeking to unwind transactions if the company is later placed into liquidation. This exemption would be subject to a condition that the transaction was entered into in good faith by both parties, on arm’s length terms and without the intent to deprive the existing creditors of the company.

Business Debt Hibernation will be available to all forms of entity (with or without legal personality) however it will not extend to sole traders. Sole traders who become insolvent are instead subject to the Insolvency Act 2006 (which covers personal insolvency) because there is no separation between the trader’s business finances and their personal finances.

Tax Loss Carry Back Scheme

This scheme essentially lets you claim a refund on tax you paid in 2019 or 2020 if you expect to make a loss this or next year. You offset a loss against a profit in a previous year – you’ll then be refunded the tax you paid over the more profitable year. This is good news for businesses who have been paying tax on profits, but there will be a lag – you’ll have to wait until you can reasonably estimate a loss to claim the refund. If you estimate your loss and then don’t suffer quite as badly, you’ll be charged interest on the extra refund you took. It might be smart, in some cases, for businesses to avoid that by underestimating their loss.

Get in touch to discuss how this will affect your business.

Small Business cashflow Loan scheme

The Small Business Cashflow Loan Scheme (SBCS) has been introduced by the Government as a result of the lack of lending by the Banks under the Business Finance Guarantee Scheme. The key features of the SBCS scheme are as follows:

• The SBCS will be administered by IRD – This includes advancing funds to businesses and managing repayments;

• All loan applications and subsequent correspondences will be processed through IRD’s myir online service;

• Applications for the scheme will be open from 12 May 2020 to 12 June 2020 inclusive;

• Eligible businesses must have 50 or fewer full-time-equivalent employees;

• Eligible businesses must be viable;

• Eligible businesses are entitled to a one-off loan with the maximum amount loaned being $10,000 plus $1,800 per full-time-equivalent employee;

• Maximum loan amount is $100,000 however you do not have to take a loan for the full amount you are eligible for - You can elect to have a smaller loan;

• Sole traders can receive a loan of up to $11,800;

• Loan funds must be used to pay for core operating costs including but not limited to rent, insurance, utilities, supplier payments or rates.

• You can only make one loan application and no amendments can be made after the loan has been applied for;

• The annual interest rate will be 3% beginning from the date of the loan being provided – Interest does not compound so you pay a flat 3% per annum.

• Interest will not be charged if the loan is fully paid back within one year.

• Repayments are not required for the first 24 months;

• Loans have a maximum term of 5 years.

More information on the Small Business Cashflow Loan Scheme requirements - Read more on our blog here.

Wage Subsidy Extension

The Government has announced an extension to the Wage Subsidy Scheme. This will provide a further 8 week payment for each employee. Applications for the Wage Subsidy Extension open on 10 June 2020. To qualify for the Wage Subsidy Extension, businesses must meet the following requirements:

• Minimum 40% (changed 5 June 2020 - previously 50%) decrease in actual or predicted revenue over the 30-day period immediately prior to applying for the extension compared to the same period last year.

• You cannot apply until your existing Wage Subsidy period has expired.

• If you’ve given an employee a notice of redundancy before you apply, you can’t apply for those employees unless the redundancy notice is withdrawn.

• You also need to agree to certain obligations, such as to:

  • pass the subsidy on to your employees

  • retain your employees for the duration of the subsidy

  • do your best to pay your employees at least 80% of their normal pay

  • take active steps to mitigate the impact of COVID-19 on your business.

Applications will be administered by WINZ and you can find more information here.

Helpful REsources

Wage Subsidy

We have been getting a lot of questions about how to record the wage subsidy from MSD and then how to process the payments that you make to your employees in Xero Payroll. Here’s two videos that we recorded that will walk you through the process.