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Business debt hibernation

Page last updated: 21 May 2020

What is business debt hibernation?

Business debt hibernation (BDH) has been introduced to help companies, trusts, and other businesses affected by COVID-19 to manage their debts by allowing them to place existing debts into hibernation for up to seven months.

Some entities regulated by the FMA may be eligible to enter BDH, but the following are not eligible:

  • sole traders
  • registered banks 
  • licensed insurers 
  • non-bank deposit takers 
  • licensed derivative issuers 
  • operators of a designated settlement system.

To enter BDH, there are a number of conditions an entity must meet, such as director approval and creditor support. General information about BDH is available at https://www.business.govt.nz/covid-19/business-debt-hibernation.

Entities need to be aware of several legal requirements, explained in Schedule 13 of the Companies Act. They may also wish to obtain accounting and legal advice to ensure their obligations are met throughout the BDH process.

FMA regulated entities will also need to consider the following.

Requirements and FMA expectations – notify FMA

FMA licensed entity - For entities licensed by the FMA, BDH will be a material change of circumstances. Entities must notify us early, as per section 412(3) of the Financial Markets Conduct Act 2013 (FMC Act). Even after entering BDH, we expect entities to continue providing their licensed service to the market.

Non-licensed entity - Even if entities entering BDH are not licensed by the FMA, they may still have obligations under the FMC Act. Entering into BDH does not remove these obligations and it is likely that some obligations will require proactive action, including where disclosure to investors is concerned. The FMA expects that entities will continue to fulfil their FMC Act obligations, and that if they have concerns regarding their ability to do so, they proactively engage with the FMA.

Brokers - If the market participant entering BDH is a broker (as defined in section 77A(1) of the Financial Advisers Act) and as such provides a broking service (i.e. the receipt, holding and payment or transfer of client money or property), the board of the entity must also send the FMA a copy of the Entry Notice as soon as is reasonably practicable after the notice is delivered to the Registrar. Brokers must also send the FMA a copy of the Creditor Decision Notice that contains the outcome of the creditors’ vote. Clauses 7 and 27 of Schedule 13 of the Companies Act 1993 give the definitive requirements for the broker notifications and set out offences for failure to comply with these notification requirements.

We also expect brokers to adhere to broker trust obligations throughout. These requirements for notification and continued compliance apply to all entities providing a broker service to clients, whether or not they are registered as a broker on the Financial Service Providers Register (FSPR).

How to notify FMA

To notify the FMA that you have entered BDH, please provide us with the following information by email, to compliance@fma.govt.nz.

  • Full name, address and Financial Service Provider (FSP) number of the entity entering BDH
  • If you are licensed by us, the details of your licence
  • The date you entered BDH
  • A copy of the Entry notice that was sent to the Registrar (as soon as reasonably practicable after it is sent to the Registrar)
  • A copy of the Creditor Decision Notice (as soon as reasonably practicable after it is sent to the Registrar).