NEW ZEALAND Law and Practice Contributed by: David Weavers, Alex MacDuff, Matt Consedine and Verniel Virtucio, Russell McVeagh
7.4 Rescue or Reorganisation Procedures Other Than Insolvency The other rescue or reorganisation procedures avail - able in New Zealand are informal work-outs and credi -
• the interaction between different creditors’ con - tractual and security rights. Market practice is often to document these relationships via a Deed of Subordination and Priority, rather than a full-form Intercreditor Agreement. These agreements often do not contain distressed disposal or intercreditor drag provisions which might facilitate the imple - mentation of liability management exercises; • removal of control from them by the appointment of an insolvency official (although if a lender is the first ranking secured creditor there will generally be the ability to appoint receivers); • moratoriums of enforcement action in certain cir - cumstances (see, for example, FDMA at 6.4 A For- eign Private Credit Lender’s Ability to Enforce Its Rights and voluntary administration at 7.1 Impact of Insolvency Processes ); • the impact of insolvency set-off (see 7.7 Set-Off Rights ); and • voidability of certain transactions or the granting of security (see 7.6 Transactions Voidable Upon Insolvency ). 7.6 Transactions Voidable Upon Insolvency Certain transactions made by a company prior to its liquidation can be potentially unwound by the liquida - tor, as follows. • A charge given by the company where, immedi - ately afterwards, the company was unable to pay its due debts during the relevant period (being six months prior to the liquidation, or two years for related parties). • A transaction that was entered into during the rel - evant period (being six months prior to the liquida - tion or two years for related parties) and at a time that the company was unable to pay its debts due, enabling the counterparty to receive a preferential payment. A creditor’s exposure to such a recovery action can be minimised, or entirely avoided, by undertaking a “running account” analysis if a con - tinuing business relationship exists between the debtor and creditor. • Where the transaction was entered into at a time company was unable to pay its debts due (or was unable to pay due debts as a result of the transac - tion), a liquidator may recover from the counter - party the difference between the value that they
tors’ compromises. Informal Work-Outs
Informal work-outs are commonplace in the New Zealand market and are implemented via a series of contractual arrangements. Typically, these will be led by the debtor in connection with senior classes of creditors operating under standstill arrangements. Depending on the size and complexity of the busi - ness and capital structure, it may become neces - sary to employ debtor-in-possession statutory pro - cesses such as creditors’ compromises or schemes of arrangement. New Zealand does not have a pro - cess similar to Chapter 11 in the US, although there are examples of Chapter 11 cases being recognised under the UNCITRAL Model Law. Creditors’ Compromise To restructure its debts, a company may make a pro - posal to its creditors in according to the procedure in the Companies Act. This process culminates in a meeting of notified creditors who vote on the propos - al, which may include a rescheduling of indebtedness and/or a compromise of claims. If approved by the same thresholds as for voluntary administration, all notified creditors will be bound by the compromise. While there is no automatic moratorium on creditor action upon issuance of a proposal, the High Court has jurisdiction to establish a moratorium on the terms it thinks appropriate. Secured creditors cannot be bound by a creditors’ compromise except with their consent. 7.5 Risk Areas for Lenders The key risk areas for lenders in the insolvency of an obligor include the following: • directors’ willingness to work with the company’s stakeholders outside of a formal insolvency pro - cess can significantly impact the company’s insol - vency (inability to pay debts) because New Zealand has strict insolvent trading rules; • the lender’s ranking in right of recovery behind other creditors (see 7.2 Waterfall of Payments );
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