Bridie McKinnon, Senior Associate at Buddle Findlay, shares her insights into how the rural sector is recovering and dealing with insolvency as a consequence of the COVID-19 pandemic. She will delve further into this topic at the upcoming Farm Debt Mediation and Insolvency webinar on Tuesday 13 October.
2020 has been a year of significant economic and personal disruption worldwide as a consequence of the COVID-19 pandemic. The rural sector hasn’t escaped the challenges brought about by the pandemic, which have included trade and export disruption, softening demand for NZ products offshore and labour shortages caused by New Zealand’s borders being closed. Economists are optimistic that the rural sector will fare better than others, both to the immediate impact of the pandemic, and in the economic recovery moving forward.[1]
The New Zealand government has introduced several legislative measures designed to assist businesses that are facing particularly dire financial circumstances. One of those, the COVID-19 Response (Further Management Measures) Act, is a collection of amendments (both temporary and permanent) to several acts with the aim of assisting businesses to manage the “immediate impacts of the response to COVID-19.
COVID-19 Response (Further Management Measures) Act
The COVID-19 Response (Further Management Measures) Act contains a raft of amendments to company and insolvency legislation designed to assist businesses to continue to operate in times of significant financial disruption.
- The introduction of a “business debt hibernation scheme” (BDH), allowing debtor companies and other entities (including partnerships, trusts, sports clubs and churches) to temporarily suspend their debts
- The introduction of safe harbour measures for directors of companies otherwise at risk of breaching their duties in relation to insolvent trading.
- Reducing the period in which insolvent transactions (other than with related parties) can be set aside from two years to six months
- Increased time allowances for mortgagees and lessees in default under the Property Law Act – mortgagees and lessees are given an additional 20 working days to ensure compliance.
Farm Debt Mediation Act
Specific to the rural sector, the Farm Debt Mediation Act 2019 became fully operational as at 1 July 2020, which is a scheme designed to (1) give farmers and secured creditors an opportunity to meet in an equitable manner to constructively and objectively explore options for business turnaround; and (2) to provide for a timely and dignified exit for those for whom few other options exist. Whilst the Farm Debt Mediation Act itself was passed before COVID-19 became a global issue, its passage is timely in the circumstances.
The Farm Debt Mediation Act establishes a statutory scheme for the mediation of farm debt disputes in New Zealand, administered by the Ministry of Primary Industries (MPI). The scheme applies to secured debts owed by a primary production business in connection with primary production activities, for example debts owed by a crop farming business which are secured over harvesting equipment. The scheme is intended to provide for the fair, equitable and timely resolution of farm debt issues. Under the scheme, parties are required to engage in (or attempt to engage in) statutory mediation before the creditor can take enforcement action in relation to farm property. Parties to farm debt cannot contract out of the scheme.
Preparation is important to ensure that a mediation has the best chance of success. All parties are advised to speak with their respective lawyers and financial advisers before mediation to ensure they have the best information available to them on the day.
[1] https://www.stuff.co.nz/southland-times/news/120769601/thank-god-for-farmers-being-the-economys-backbone-says-economist
Bridie McKinnon specialises in a broad range of litigation matters across various jurisdictions. She advises on contractual disputes, insolvency and credit recovery, securities enforcement, property law disputes, negligence and professional negligence claims. She also has experience in arbitration, including investor treaty arbitration.
Bridie offers pragmatic and tailored advice on all aspects of litigation strategy and has appeared in the New Zealand Court of Appeal, High Court and District Court as sole and junior counsel.
Prior to re-joining Buddle Findlay, Bridie spent three years in London working at Quinn Emanuel Urquhart & Sullivan UK LLP, a specialist international litigation and disputes only practice where she worked on a wide variety of litigation and arbitration matters in England, the British Virgin Islands and Singapore.
