New Zealand Law Society

Navigation menu

COVID-19 debt and insolvency legislation needs more work, says Law Society

11 May 2020

Legislation being fast-tracked through Parliament to respond to looming debt and insolvency problems needs refinement and to be supported by comprehensive practical guidance, particularly for the small-to-medium businesses that make up the bulk of New Zealand’s business activity, the New Zealand Law Society|Te Kāhui Ture o Aotearoa has told the Epidemic Response Committee.

The Law Society pointed to a number of concerns with the Business Debt Hibernation scheme and proposed “safe harbours” relating to directors’ duties in the COVID-19 Response (Further Management Measures) Legislation Bill, particularly as the Bill is being passed very quickly with only minimal opportunity for input from stakeholders.

“We are concerned the complexity of the proposed BDH scheme will mean it is effectively out of reach for the SME community and so will not meet the desired policy goals. A solution may be for a shorter and simpler (and so faster) process, aimed specifically at smaller entities, to be formulated. In any event, guidance on the BDH scheme should be provided to assist smaller entities to navigate the scheme”, Law Society spokesperson, Charlotte McLoughlin, told the committee on Friday, 8 May.

The Law Society pointed to other concerns, including directors’ ability to ‘confidently comply’ with the BDH scheme, given the need for directors to make statutory declarations about matters that are inherently uncertain, when such declarations may not be necessary in any event.

“If directors are not able to comply confidently, the uptake of the scheme will be limited,” Ms McLoughlin said.

The Law Society suggested a range of changes to the Bill to improve the effectiveness of the proposed “safe harbours”, including clearer drafting of the safe harbour to section 135 (reckless trading), to better align the conditions of the safe harbour with the substance of the underlying duty, and adding a statement of the statutory purpose of the regime.

“This would help directors to understand, clearly and with confidence, their obligations and what protection they have during the next 18 months,” Ms McLoughlin said.

The Law Society also commented on other parts of the Bill, including the proposal to allow the use of audio links to conduct hearings in Corrections disciplinary and criminal court proceedings. The Law Society supports measures to address current constraints on remote access to hearings, but told the committee there were significant concerns about the precedent of allowing ”audio only” hearings, even on an emergency basis. The Law Society believes these amendments should be deleted from the Bill.

Appearing in a Corrections disciplinary proceeding or sentencing hearing only via audio link does not amount to real and effective participation by the prisoner/defendant, the Law Society said. Efficiency, or the fact that an audiovisual link is difficult to arrange at present, should not trump defendants’ right to effectively participate in proceedings that may impact on their liberty.

“The real purpose of disciplinary and sentencing hearings is to formally address conduct and encourage behaviour change, and this is at risk of being severely undermined if people do not feel engaged in the process,” Law Society spokesperson, Chris Macklin, told the committee.

The Law Society has also pointed to significant practical problems with conducting hearings via audio link, given current resource constraints in the justice sector. If the audio link provisions are retained for the duration of the pandemic period, the Law Society recommends the Bill be amended to require the prisoner/defendant’s consent to the use of audio links for hearings.

This is the Law Society’s second appearance before the Epidemic Response Committee. Information about the first submission, on the Immigration (COVID-19 Response) Amendment Bill, is here

The Law Society’s submission on the COVID-19 Response (Further Management Measures) Legislation Bill is here

More information on both Bills is here

Last updated on the 11th May 2020