ViticultureCOVID 19

Insolvency relief for business announced by Government

The Government has announced that it will introduce changes to the Companies Act 1993 to help companies facing insolvency due to COVID-19 to stay in business.

While yet to be agreed by Parliament, the changes to the Companies Act will:

·       Be backdated to 3 April 2020 and will be in place for 6 months;

·       Provide a safe harbour for directors’ from their duties under section 135 (reckless trading) and 136 (duty in relation to incurring obligations);

·       Bring in a COVID-19 Business Debt Hibernation regime.

Safe harbour

Decisions of directors’ over the next 6 months to keep trading, and to take on new obligations, will not result in a breach of their duties under sections 135 or 136 if:

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

COVID-19 Business Debt Hibernation

The Companies Act will be amended to introduce a COVID-19 Business Debt Hibernation regime.

The intention of the regime is to:

  • Get directors’ to talk to creditors with a view to putting in place a simple proposal for putting the business into hibernation;
  • Allow directors’ to retain control of the company rather than an insolvency practitioner taking control;
  • Provide certainty to creditors that they won’t have to repay any money they have received in order to encourage businesses to continue transacting with businesses in Business Debt Hibernation;
  • Be simple and flexible so it can be put in place quickly.

Key requirements

While the detail is not yet available, the key features of the Business Debt Hibernation are:

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


If agreed with creditors, Business Debt Hibernation:

  • Would be binding on all creditors other than the company’s employees and will be subject to any conditions agreed with creditors;
  • Allow companies which are in Business Debt Hibernation to continue to trade, subject to any restrictions agreed with creditors as a condition of entering into it;
  • Will encourage anyone continuing to trade with a company in Business Debt Hibernation to continue as the company will be exempt from the voidable transactions regime i.e. those trading 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;
    • is on arm’s length terms; and
    • is without the intent to deprive the existing creditors of the company. 

The exemption will not extend to related parties.

Other changes

Other proposed changes include:

  • Amend the law governing the use of electronic signatures so that it applies to security agreements containing powers of attorney;
  • Granting Registrars powers to relax some statutory deadlines (e.g. for holding AGMs and filing annual returns);

·       Temporary relief for entities  (including incorporated societies, charitable trusts, unincorporated associations and other entities) that are unable to comply with obligations in their constitutions or rules because of the impacts of COVID-19 from doing so until such a time when they are reasonably able to perform it.  In addition, these entities can use electronic communications (including electronic meetings) even if their constitutions or rules do not allow them to.

We will provide further updates as more information is made available.  Also see:

https://www.companiesoffice.govt.nz/news-and-notices/insolvency-relief-for-businesses-impacted-by-covid-19/

https://www.companiesoffice.govt.nz/about-us/what-we-do/insolvency-relief-for-businesses-impacted-by-covid-19/

For assistance please contact Tracey Wills at  Tracey@hflaw.co.nz or on 021 852 341

Employment Law

The COVID-19 lockdown raises many employment law questions.

Many people are now working from home, but some jobs can’t be done from home and only those in essential services are allowed to go out to work. So are employees who can’t work because of the lockdown still entitled to be paid? It depends on what type of employee they are. Casual employees with no guaranteed hours will not be entitled to be paid, except perhaps if there is a provision in their contract requiring them to be available for any work provided by the employer. But employees with guaranteed hours and salaried employees must still be paid.

An employer may be able to require employees to take annual leave during the lockdown. However, there is a process to go through, so this isn’t a quick fix. The employer must first try to reach agreement with the employee on when holidays will be taken. If agreement can’t be reached, they must then give 14 days’ notice to the employee.

There are also issues for businesses still open. Obviously it is essential to ensure anyone who may be sick is not at work. However, employers cannot require employees to take sick leave. It is up to the employee to decide whether they take sick leave. But an employer can send a sick employee home on paid leave for health and safety reasons.

Employees who aren’t sick but need to self-isolate because they are vulnerable or may have been in contact with someone with COVID-19 are not entitled to sick leave as they aren’t actually sick. However, in the circumstances, employers may agree to treat this as special paid leave, or allow employees to take this as sick or annual leave.

Some businesses may be in the difficult position of having to let some or all of their employees go. Some employment contract have a force majeure clause that allows employees to be terminated without notice when a major event beyond the employer’s control occurs. Whether it applies in this situation will depend on its exact wording. The employer should still consult with employees before invoking this clause.

If the contract doesn’t have a force majeure clause, employers will need to go through a redundancy process. Redundancies are allowed when the employer has genuine commercial reasons for them, but the employer must follow a fair and reasonable process. They must provide information to employees about the proposal and their reasons for it. They must be given an opportunity to comment on it. A shorter than usual timeframe for this process may be permissible in the current situation. But the timeframe would still have to be adequate for information to be provided to employees, for them to review it and for them to comment. If some but not all employees are to be made redundant, there must be a fair selection process based on clear criteria.

Employees may also need flexible working arrangements at the moment, particularly with the closure of schools and childcare centres. This can involve the number of hours or days that they work, the times at which they work, or the place at which they work. Employees have a legal right to request flexible working arrangements. The employer must grant the request unless it cannot accommodate it.

Employment law is a complex area that depends on the wording of specific contracts as well as general laws. Employers who get it wrong can end up having to pay substantial compensation. If you’re wondering what your obligations or rights are, we are happy to provide advice.

 

Health and Safety

Health and safety has never been more critical than at the moment, as we deal with a global pandemic. While most businesses have closed their premises and moved if possible to working at home, their health and safety obligations don’t stop.

The Health and Safety at Work Act defines a workplace as anywhere that work is carried out. That means that the houses of all workers working at home are now workplaces. Employers have a duty to do all they reasonably can to ensure employees are safe while working at home.

Obviously, employers may not be familiar with the homes of their employees – nor will going to inspect them be practicable or desirable at the moment. So how can they fulfil their obligations?

Two of the key things emphasised in the Health and Safety at Work Act are communication and cooperation. Duty-holders have to co-operate to address health and safety issues. And workers are duty-holders too – they have a statutory obligation to protect their own health and safety.

So a good start is to ask employees about any risks in their home working set-up and any other health and safety issues they can see. Ask them if there is any equipment they need to work safely. For instance, do they have an ergonomic chair or keyboard at work but not at home? If so, can they take one from the office or can you supply them one in some other way?

It’s also important to think about mental health. Isolation can have negative mental health effects and it’s obviously a worrying time for people. Stress about work can contribute to mental health issues, so it’s important employers are proactive on this front. For employers who offer counselling or other services through an EAP, it’s a good time to remind workers of these services. More generally, tell your staff to let you know if they are feeling stressed or overwhelmed. Let them know that you will be understanding and flexible in these extraordinary circumstances.

If your premises are still open because you’re providing an essential service, health and safety will also be crucial. You will need to think very carefully about all the ways you can mitigate the risk of spreading COVID-19, while ensuring that your workplace is safe in other ways. Government guidance will help, but you’ll also need to think about the situation and risks in your specific workplace.

Health and safety is a very context-specific area of law – and the cost of getting it wrong can be high, both in human and in financial terms. So it’s worth seeking advice before you have a problem.

 

Contracts

COVID-19 and the nationwide lockdown to stop its spread will mean that many businesses will be unable to meet contractual obligations. Both suppliers and purchasers need to know what their rights are in this situation.

Some contracts have clauses, usually known as force majeure clauses, to deal with unforeseen situations outside the parties’ control. Sometimes, instead of a “force majeure”, they will refer to an “Act of God”. Typically, these clauses will provide that, when an event to which the clause applies takes place, each party can either end the contract or extend the time performance.

Whether a force majeure clause applies in this situation very much depends on its wording. Some clauses include a closed list of situations to which they can apply, which may or may not include a pandemic. Other clauses are more general and open-ended. Often the party invoking the clause must show that their performance of the contract has been prevented or at least severely hindered.

Where a contract does not contain a force majeure clause, a party may still be able to exit it under the doctrine of frustration. This provides that a contract automatically ends when performing the contract becomes impossible or radically different from what was envisaged when the parties entered into the contract. The frustration must be because of unforeseeable circumstances out of the party’s control.

The test for frustration is very high. Government restrictions, such as in a war or emergency situation, can be a cause of frustration. They do not have to be permanent, but they must be of long or indefinite duration. This is a matter of degree and requires careful consideration of all the circumstances.

Where the contract has been frustrated, a party who has already paid money under the contract will be entitled to it back, subject to the discretion of the court to make an allowance for any expenses incurred by the other party. The court can also award compensation for any benefit provided to the party by the partial performance of the contract by the other party before it was frustrated.

Sometimes a contract may be severable because the work will be done and the contract price paid in stages. In this case, stages that have been completed, and the payments made for them, will not be affected if the contract is frustrated.

A contract may also have a specific severability clause. The effect of this will depend on its precise terms, but it may allow parts of the contract to continue even if others have become impossible to performed and are therefore terminated.

Invoking either a force majeure clause or the doctrine of frustration when they are not applicable will leave you liable for damages for not performing the contract. It is therefore very important to seek legal advice before doing so. If another party has invoked either force majeure or frustration, you should seek advice on your rights and whether you can claim damages.

If you have any questions or issues related to the above, we are happy to help.

 

As at 24th March 2020

Employment Law
The COVID-19 lockdown raises many employment law questions.
Many people are now working from home, but some jobs can’t be done from home and only those in essential services are allowed to go out to work. So are employees who can’t work because of the lockdown still entitled to be paid?
It depends on what type of employee they are. Casual employees with no guaranteed hours will not be entitled to be paid, except perhaps if there is a provision in their contract requiring them to be available for any work provided by the employer. But employees with guaranteed hours and salaried employees must still be paid.
An employer may be able to require employees to take annual leave during the lockdown. However, there is a process to go through, so this isn’t a quick fix. The employer must first try to reach agreement with the employee on when holidays will be taken. If agreement can’t be reached, they must then give 14 days’ notice to the employee.
There are also issues for businesses still open. Obviously it is essential to ensure anyone who may be sick is not at work. However, employers cannot require employees to take sick leave. It is up to the employee to decide whether they take sick leave. But an employer can send a sick employee home on paid leave for health and safety reasons.
Employees who aren’t sick but need to self-isolate because they are vulnerable or may have been in contact with someone with COVID-19 are not entitled to sick leave as they aren’t actually sick. However, in the circumstances, employers may agree to treat this as special paid leave, or allow employees to take this as sick or annual leave.
Some businesses may be in the difficult position of having to let some or all of their employees go. Some employment contract have a force majeure clause that allows employees to be terminated without notice when a major event beyond the employer’s control occurs. Whether it applies in this situation will depend on its exact wording. The employer should still consult with employees before invoking this clause.
If the contract doesn’t have a force majeure clause, employers will need to go through a redundancy process. Redundancies are allowed when the employer has genuine commercial reasons for them, but the employer must follow a fair and reasonable process. They must provide information to employees about the proposal and their reasons for it. They must be given an opportunity to comment on it. A shorter than usual timeframe for this process may be permissible in the current situation. But the timeframe would still have to be adequate for information to be provided to employees, for them to review it and for them to comment. If some but not all employees are to be made redundant, there must be a fair selection process based on clear criteria.
Employees may also need flexible working arrangements at the moment, particularly with the closure of schools and childcare centres. This can involve the number of hours or days that they work, the times at which they work, or the place at which they work. Employees have a legal right to request flexible working arrangements. The employer must grant the request unless it cannot accommodate it.
Employment law is a complex area that depends on the wording of specific contracts as well as general laws. Employers who get it wrong can end up having to pay substantial compensation. If you’re wondering what your obligations or rights are, we are happy to provide advice.
Health and Safety
Health and safety has never been more critical than at the moment, as we deal with a global pandemic. While most businesses have closed their premises and moved if possible to working at home, their health and safety obligations don’t stop.
The Health and Safety at Work Act defines a workplace as anywhere that work is carried out. That means that the houses of all workers working at home are now workplaces. Employers have a duty to do all they reasonably can to ensure employees are safe while working at home.
Obviously, employers may not be familiar with the homes of their employees – nor will going to inspect them be practicable or desirable at the moment. So how can they fulfil their obligations?
Two of the key things emphasised in the Health and Safety at Work Act are communication and cooperation. Duty-holders have to co-operate to address health and safety issues. And workers are duty-holders too – they have a statutory obligation to protect their own health and safety.
So a good start is to ask employees about any risks in their home working set-up and any other health and safety issues they can see. Ask them if there is any equipment they need to work safely. For instance, do they have an ergonomic chair or keyboard at work but not at home? If so, can they take one from the office or can you supply them one in some other way?
It’s also important to think about mental health. Isolation can have negative mental health effects and it’s obviously a worrying time for people. Stress about work can contribute to mental health issues, so it’s important employers are proactive on this front. For employers who offer counselling or other services through an EAP, it’s a good time to remind workers of these services. More generally, tell your staff to let you know if they are feeling stressed or overwhelmed. Let them know that you will be understanding and flexible in these extraordinary circumstances.
If your premises are still open because you’re providing an essential service, health and safety will also be crucial. You will need to think very carefully about all the ways you can mitigate the risk of spreading COVID-19, while ensuring that your workplace is safe in other ways. Government guidance will help, but you’ll also need to think about the situation and risks in your specific workplace.
Health and safety is a very context-specific area of law – and the cost of getting it wrong can be high, both in human and in financial terms. So it’s worth seeking advice before you have a problem.
Contracts
COVID-19 and the nationwide lockdown to stop its spread will mean that many businesses will be unable to meet contractual obligations. Both suppliers and purchasers need to know what their rights are in this situation.
Some contracts have clauses, usually known as force majeure clauses, to deal with unforeseen situations outside the parties’ control. Sometimes, instead of a “force majeure”, they will refer to an “Act of God”. Typically, these clauses will provide that, when an event to which the clause applies takes place, each party can either end the contract or extend the time performance.
Whether a force majeure clause applies in this situation very much depends on its wording. Some clauses include a closed list of situations to which they can apply, which may or may not include a pandemic. Other clauses are more general and open-ended. Often the party invoking the clause must show that their performance of the contract has been prevented or at least severely hindered.
Where a contract does not contain a force majeure clause, a party may still be able to exit it under the doctrine of frustration. This provides that a contract automatically ends when performing the contract becomes impossible or radically different from what was envisaged when the parties entered into the contract. The frustration must be because of unforeseeable circumstances out of the party’s control.
The test for frustration is very high. Government restrictions, such as in a war or emergency situation, can be a cause of frustration. They do not have to be permanent, but they must be of long or indefinite duration. This is a matter of degree and requires careful consideration of all the circumstances.
Where the contract has been frustrated, a party who has already paid money under the contract will be entitled to it back, subject to the discretion of the court to make an allowance for any expenses incurred by the other party. The court can also award compensation for any benefit provided to the party by the partial performance of the contract by the other party before it was frustrated.
Sometimes a contract may be severable because the work will be done and the contract price paid in stages. In this case, stages that have been completed, and the payments made for them, will not be affected if the contract is frustrated.
A contract may also have a specific severability clause. The effect of this will depend on its precise terms, but it may allow parts of the contract to continue even if others have become impossible to performed and are therefore terminated.
Invoking either a force majeure clause or the doctrine of frustration when they are not applicable will leave you liable for damages for not performing the contract. It is therefore very important to seek legal advice before doing so. If another party has invoked either force majeure or frustration, you should seek advice on your rights and whether you can claim damages.
If you have any questions or issues related to the above, we are happy to help.
As at 24th March 2020