COVID-19 Business Debt Hibernation

Information about the Business Debt Hibernation process

Published 7 May 2020, last updated 1 December 2021

Temporary legislation passed in May 2020 introduced a 'Business Debt Hibernation' process, allowing businesses affected by COVID-19 to put their debts on hold. Eligible businesses were able to enter into Business Debt Hibernation (BDH) up to 31 October 2021.

On this page:

  1. Entering into Business Debt Hibernation
  2. Approaching creditors with a proposal
  3. Ending Business Debt Hibernation
  4. Records you must keep

1. Entering into Business Debt Hibernation

BDH allowed businesses to apply for an initial month’s protection, giving them time to talk to their creditors. During this period, most creditors could not take legal action to enforce their debts, for example, by applying for a business to be liquidated. If creditors agreed, the period of protection was extended by a further 6 months.

Businesses entering into BDH were required to send an Entry Notice to the Companies Office. We then published this notice on the relevant business entity’s register.

Eligible business types

  • Charitable trusts
  • Companies (NZ and overseas)
  • Friendly societies
  • Incorporated societies
  • Industrial & provident societies
  • Limited partnerships (NZ and overseas)
  • Public sector entities
  • Unincorporated partnerships
  • Unincorporated trusts
  • Others, eg unregistered unincorporated entities such as Maori trusts.

Clauses 3 and 4 of Schedule 13 of the Companies Act 1993 give the definitive list of eligible business types.

Viable businesses

A business was considered viable if:

  • as at 31 December 2019, the entity was able to pay its debts as they became due in the normal course of business
  • the entity was not already in liquidation, voluntary administration, or other similar processes
  • the board (or equivalent) believed it was more likely than not that the entity would be able to pay its due debts on and after 30 September 2021, taking account of financial forecasts and other criteria. For entities that entered into BDH after 24 December 2020, the date by which an entity would be able to pay its due debts was extended to July 2022.

Clause 5 of Schedule 13 of the Companies Act 1993 gives the definitive requirements.

What information was required when a business entered BDH

A business entering into BDH was required to send a completed Entry Notice to the Companies Office. It was also required to send a copy to each of the company’s creditors, along with:

  • a signed certificate from each supporting board member, showing their agreement to enter Business Debt Hibernation according to the Act
  • at least a high-level description of the proposed arrangement
  • the total number of creditors and the total amount owed
  • a postal or email address and telephone number for inquiries
  • the date the Entry Notice was sent to the Companies Office.

This was not the creditor proposal but gave creditors the initial information they needed. If a board did not provide this information as required, each director committed an offence and could receive a fine.

Clause 7 of the Schedule 13 of the Companies Act 1993 gives the definitive requirements.

2. Approaching creditors with a proposal

For BDH to have continued, by the end of the initial month's protection period at least half of the business’s creditors must have agreed to the arrangement the business proposed.

You must also have sent us a Creditor Decision Notice, even if your creditors did not approve the arrangement you proposed.

If the proposal had majority agreement, all creditors are bound — not just those who voted for it. While a business is in debt hibernation it can continue to trade, subject to any restrictions agreed with creditors. Creditors cannot enforce existing debt during the 6-month standstill. They will, however, have the ability to go to the court to seek relief in exceptional circumstances.

Clauses 9 and 10 of Schedule 13 of the Companies Act 1993 give the definitive requirements around developing a proposal and giving notice to creditors.

3. Ending Business Debt Hibernation

Business Debt Hibernation ends automatically at the end of the 6-month protection period.

Ending Business Debt Hibernation early

To end Business Debt Hibernation early, send us a Cancellation Notice at least 5 working days before you intend to leave Business Debt Hibernation. At the same time, send a copy of the notice to all creditors.

Your Cancellation Notice needs to:

  • state that the board (or equivalent) has agreed to cancel Business Debt Hibernation
  • give the date your business intends to come out of Business Debt Hibernation.

Clause 19 of Schedule 13 of the Companies Act 1993 gives the definitive requirements.

Send us your Cancellation Notice

If the business enters a creditor compromise, voluntary administration, receivership, or liquidation

Business Debt Hibernation also ends automatically if the business enters a creditor compromise, voluntary administration, receivership, or liquidation.

If this happens, send us a Notice under clause 70 within 5 working days of the liquidation or other arrangement.

Clauses 18 and 70 of Schedule 13 of the Companies Act 1993 give the definitive requirements.

Send us your Clause 70 Notice

Can a transaction be unwound if the business in hibernation then liquidates afterwards?

Any further payments, or dispositions of property, made by the business to third party creditors are exempt from the voidable transactions regime. This exemption does not extend to related parties.

This exemption is subject to the 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 business.

4. Records you need to keep

Like other official business records, you need to keep any records relating to Business Debt Hibernation at your registered office address (if you have one) or your place of business.

These records include:

  • financial records to prove your financial position at 31 December 2019 (for businesses established before 1 January 2020)
  • copies of any decisions or resolutions about entering Business Debt Hibernation
  • copies of signed certificates from each supporting board member, showing their agreement to enter Business Debt Hibernation
  • copies of the Entry Notice sent to the Registrar and to creditors
  • copies of the proposed arrangement sent to creditors, and any variations
  • information about any creditor meeting
  • copies of communications with creditors about Business Debt Hibernation
  • copies of creditors’ votes
  • copies of certificates – by authorised person who counts votes and by Board on result of vote
  • copy of the Creditor Decision Notice sent to the Registrar.

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