In the wake of the COVID-19 pandemic, businesses worldwide found themselves navigating uncharted waters, facing unprecedented challenges that threaten their very survival. Among the lifelines thrown by the New Zealand Government to buoy the economy was the Business Debt Hibernation (BDH) regime. This was a novel legislative measure to provide struggling businesses with a reprieve from the suffocating grip of insolvency. This regime aimed to allow affected businesses to hibernate during this period so they could survive and go on to thrive.
This blog post delves into the intricacies of the BDH regime, exploring its nuances, the qualification criteria, the entry process, and its overall effectiveness as a tool for business recovery.
The BDH regime is a legislative response tailored to address the liquidity crises that have besieged businesses in the wake of the pandemic. Designed to offer a breathing space for businesses teetering on the brink of insolvency, the regime allows for a temporary suspension of debt obligations, enabling businesses to recalibrate and strategise for survival and eventual recovery.
Not all businesses can avail themselves of the BDH regime. The eligibility criteria are stringent, ensuring that only those genuinely impacted by the pandemic-induced economic downturn can enter hibernation. To qualify, a business must:
The process of entering debt hibernation is marked by several critical steps:
Entering hibernation is only the beginning. The cornerstone of the BDH regime is the proposal stage, wherein directors must craft a compelling debt management plan to present to creditors. This plan, which aims to hibernate debts for six months, requires careful consideration and strategic foresight to ensure creditor buy-in.
The fate of a BDH proposal rests in the hands of the creditors, who must vote on whether to accept or reject the plan. A majority by both number and value is required for approval, with related parties such as directors and close relatives barred from voting to maintain impartiality.
The BDH regime imposes strict restrictions on creditors during the hibernation period, with notable exceptions for perishable goods. These legal parameters are designed to protect the hibernating company from precipitous actions that could further jeopardise its recovery prospects.
The BDH regime is not a one-size-fits-all solution. Its applicability and success depend on various factors, including the company’s specific circumstances and the broader economic environment. Communication and transparency with creditors emerge as critical elements in navigating the BDH process successfully.
For businesses considering debt hibernation, numerous resources are available to guide them through the process. Notably, comprehensive e-books and guides offer in-depth insights into the BDH regime and alternative strategies for managing financial distress.
The Business Debt Hibernation regime stands as a testament to the innovative legislative measures being implemented to safeguard the economy during the COVID-19 crisis. While it offers a valuable lifeline to businesses struggling to stay afloat, it is not a panacea. For many, alternative solutions such as creditor compromises or voluntary administration may present a more viable path to recovery. As the economic landscape continues to evolve, businesses must weigh their options carefully, seeking the most effective route to navigate the storm and emerge stronger on the other side.
If you need to discuss this with us, we offer a free 30-minute legal consultation which can be booked here.
Brent is the Director of Norling Law. He has a wealth of experience in the District Court, High Court, Court of Appeal and Supreme Court. Brent is passionate about negotiating favourable outcomes for his clients and able to implement this in his daily negotiations.
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