COVID-19 Business Debt Hibernation Scheme

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COVID-19 Business Debt Hibernation Scheme

The government has extended the COVID-19 Business Debt Hibernation (BDH) scheme until 31 October 2021 in response to the pressures placed on businesses during the pandemic.

Businesses who qualify to use the BDH scheme can buy up to six months grace in order to pay their creditors and have time to address their cash flow difficulties.

At a high level, the scheme:

  • allows for businesses to set up an arrangement to pay their existing debts;
  • gives the business a month to set up the arrangement and is protected from their creditors during this time;
  • and if 50% of your creditors agree to your proposal, the business can get up to six months to pay off the existing debts in full, allowing the business to “hibernate” their debts until they can resume trading normally.

New debt would not be covered by the scheme.

As with all the COVID-19 initiatives, conditions apply, including:

  • only businesses established prior to 3 April 2020 qualify;
  • your business isn’t already in liquidation or voluntary administration;
  • you can point to the impact of COVID-19 affecting your ability to pay debts;
  • your business must be able to recover and remain viable;
  • you have explored alternatives to free up money to pay your debts; and
  • where there is more than one director (or equivalent), 80% approval is required.

Getting quality advice on this course of action is crucial from an accountant or lawyer who will be able to advise you on whether the BDH scheme is the best course of action and if it is, help you complete the necessary paperwork.

The scheme is being administered through the Companies office but is not limited to companies. The following business types are eligible:

  • 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.

Sole traders are not included in the scheme.

More information is available on the government’s Business website here.

Please do not hesitate to get in touch if you are considering the BDH scheme for your organisation and we can guide you through the decision making process and application.

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