Authors: Michael Harper, Janko Marcetic 
Published: 25 May 2022
Pages: 39

Introduction

Many expected an insolvency tsunami and falling house prices after the economy took the 2020 COVID-19 hit. The pandemic has caused:
• Governments to support business (in part by the Crown guaranteeing business debt) on a scale that was previously unimaginable.
• Governments to change insolvency laws and introduce new processes in order to provide breathing space for distressed businesses.
• Consumer and technology shifts to e-commerce at an accelerated rate.
• Business practices adapting to working from home or remote working models also at an accelerated rate.
As a consequence of these major shifts:
• Until recently, interest rates have fallen, house prices have risen, equity markets have surged, and domestic consumption remains stronger than anticipated.
• Insolvencies have fallen around 50% from 2019 in New Zealand and Australia.
• Banks remain committed to supporting distressed borrowers (in the form of holidays and deferments). And Inland Revenue has entered into 140,000 arrangement to pay tax in instalments covering $3.7 billion in tax. But Inland Revenue has also recently begun taking steps to recover unpaid tax.
There is a school of thought that massive government support has protected businesses and that New Zealand will side step high level of insolvencies.
But our economic history tells us that there is often a gap between “black swan” events and high levels of business failure – for example, the 1987 stock market crash impacted New Zealand most deeply in 1991.
 

Content outline

• Legislative intervention in New Zealand and overseas in response to the COVID-19 pandemic
• Restructuring tools available to companies in distress
• Considerations for businesses in dealing with potentially insolvent counterparties
• Potential law reform