Guidance for distressed companies

COVID-19 is expected to have a greater adverse impact on the NZ economy than the 2008 global financial crisis and is unfortunately likely to trigger numerous business failures.

The national lockdowns have had a significant impact on certain businesses’ trading and cashflow. In some instances, earnings have not yet returned and some businesses will be unlikely to recover. Directors will need to be mindful of the impact on the solvency of their business and carefully consider whether continuing to trade is in the best interests of the company and its creditors.

This paper provides practical guidance for directors that are considering issues of solvency. Optionality for stakeholders is likely to become more limited as the business comes under increasing financial stress. Acting earlier with some of the lighter actions may defer or lessen the requirements for more extreme measures further down the track. None of these choices are without consequences.