NEW ZEALAND Law and Practice Contributed by: David Weavers, Alex MacDuff, Matt Consedine and Verniel Virtucio, Russell McVeagh
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 com - pany’s stakeholders outside of a formal insol - vency process can significantly impact the company’s insolvency (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 ); • removal of control from them by the appoint - ment 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 circumstances (see, for example, FDMA at 6.4 A Foreign Private Credit Lender’s Ability to Enforce Its Rights and voluntary admin- istration at 7.1 Impact of Insolvency Pro- cesses ); • the impact of insolvency set-off (see 7.7 Set- Off Rights ); • voidability of certain transactions or the grant - ing 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 liquidator, as follows. • A charge given by the company where, imme - diately afterwards, the company was unable to pay its due debts during the relevant period (being six months prior to the liquida - tion, or two years for related parties).
be diluted by the costs and expenses of the insolvency process. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency The other rescue or reorganisation procedures available in New Zealand are informal work-outs and creditors’ 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 com - plexity of the business and capital structure, it may become necessary to employ debtor-in- possession statutory processes such as credi - tors’ compromises or schemes of arrangement. New Zealand does not have a process 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 proposal 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 proposal, which may include a rescheduling of indebtedness and/or a com - promise of claims. If approved by the same thresholds as for voluntary administration, all notified creditors will be bound by the compro - mise. 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 credi - tors’ compromise except with their consent.
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