Editors note: Due to technical issues yesterday that prevented our articles from being viewed by most of our audience I have made the decision to republish them today.
I am developing a strong respect for Grant Robertson. I never rated him much as a finance minister, simply because he has no background in finance or economics, but clearly Grant is one of the very few ministers who has worked hard to get on top of his portfolio. While the minister of health, who should be working at his desk for 18 hours a day in Wellington at the moment, is breaking lockdown rules by going bike riding in Dunedin, Robertson really is putting in the hard yards. He acknowledges that the economic effects of this virus are catastrophic, and has clearly been working with advisors to come up with plans to mitigate the terrible downturn that will follow.
His latest idea is to temporarily bend the rules around directors’ liability and trading while insolvent. This is a smart move.
The NZ Herald reports:
Company directors will be able to use a “safe harbour” from insolvency responsibilities and businesses may be able to put debts into hibernation, under urgent law changes designed to keep the economy running through the lockdown.
Finance Minister Grant Robertson and Commerce Minister Kris Faafoi announced changes to the Companies Act on Friday aimed at easing pressure on directors to declare businesses insolvent.
The 1993 Companies Act introduced hefty penalties on directors who traded while insolvent, which break the limited liability status of a company and may force directors to pay creditors out of their own assets. Even if this is not followed through, company directors are required by law to cease trading if they are insolvent. Every client who ever came to me wondering if they should go into liquidation (often out of a feeling of responsibility towards staff and creditors) were told that they had no choice, if they didn’t want to run the risk of losing their homes. The rules are strict, and they are there for a good reason.
However, at the moment, we are facing a very different world.
Speaking to reporters in the Beehive on Friday, Robertson urged directors not to make “rash decisions” as they endured a nationwide lockdown.
“We encourage all businesses to … hold onto your people. Give them the wage subsidy if you need to. Don’t make rash decisions during this time and have a plan for coming out the other side.”
The changes will allow directors of companies facing significant liquidity problems because of Covid-19 to take advantage of a ‘safe harbour’ from insolvency duties.
Declaring insolvency is never a rash decision, but in making these moves, Robertson is giving company directors the opportunity to park up debt until they are back to normal trading.
Robertson said the changes, which will require a law change which will be retrospective to today, were designed to protect jobs and cushion the economy from the impact of Covid-19.
Under normal circumstances, it is mostly fair to hold directors responsible for company failures, but these are not normal circumstances. Many businesses will get back to normal, and will be able to use stock, pay wages and overheads and rebuild their customer bases within a 6 month period. Hopefully, this means that some sectors of the economy will recover quickly. Tourism is going to be in the doghouse probably for years, but at least other sectors can recover. But with the threat of personal liability hanging over the heads of directors, in a situation that is not of their making, we were looking at an economic disaster.
This is a smart move by Robertson. Clearly, he is anxious to get the recovery underway as soon as possible. While it is going to be a hard road for some, he is one minister who, I believe, really does have the good of the country at heart.
Which is rather more than can be said for David Clark, Minister of Health, don’t you think?
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