Hefty consequences for getting it wrong when company was in financial distress
In September 2020, the Supreme Court released its keenly anticipated decision in the Debut Homes case. This decision illustrates the risks for directors where a company is experiencing irrecoverable financial distress.
Since the pandemic arrived on our shores, the government has made available multiple types of financial relief; more than one may be available to your business. Although applications under the popular Wage Subsidy Scheme ended on 1 September 2020, other options are still available for support if you need it.
Apprentice Support Programme
If your business has an apprentice who is actually training, you may be eligible to receive $1,000/month for first year apprentices and $500/month for second year apprentices. This payment is for a maximum of 20 months from August 2020 to March 2022. Visit here at Work and Income Te Hiranga Tangata to apply.
The Privacy Bill is on its third reading in Parliament and will now become law on
1 December 2020. It will repeal and replace the current Privacy Act 1993, and
will update the law to reflect the continually-evolving needs of the digital age.
Why new legislation?
Your personal information is stored in many places by organisations such as businesses,
government agencies, healthcare providers, financial institutions, social network platforms and telecommunications companies (called ‘agencies’ in the new legislation).
As I write this editorial, the Covid-19 pandemic has had, and continues to have, a long-lasting effect on New Zealand and the rest of the world. Everyone has been affected in some way – to a greater or lesser degree.
During lockdown, our physical environment changed with significantly less pollution and fewer emissions. It was quieter with only a handful of vehicles on the road, and we could more easily see and hear our native birds. Our focus altered to our home and families, go-ing for long walks and enjoying each other’s company.
In the past three months, most landlords and tenants would have become more familiar with the details of their lease. In particular, most will be looking at how clause 27.5 of the Auckland District Law Society (ADLS) lease applies to the government-imposed lockdown that we have all experienced as a result of Covid-19.
A bit of background
Following the Christchurch earthquakes, landlords and tenants were not permitted access to leased properties that were inside the ‘red zone’ while investigations into the structural integrity of buildings were being undertaken. In these instances, where the property had not been totally or partially destroyed, the parties were still required to meet their full obligations under their lease even though they were unable to operate from their leased premises.
Covid-19, and the restrictions imposed by the government in an attempt to control it, have deeply affected our lives. However, it’s not just our social lives that have become frustrated. Some businesses and individuals have found themselves party to a contract they can no longer perform due to Covid-19 and the government restrictions. Whether it is an event scheduled during a lockdown that can no longer be held, a customer who you can no longer supply or transport goods to due to travel or border restrictions, or a service you can no longer provide, the ‘doctrine of frustration’ may be able to help.
The courts first recognised the doctrine of frustration in the 1800’s case of Taylor v Caldwell where two parties had a contract to lease a music hall that burnt down before any concerts could be held. The court held that the contract was frustrated and the parties were discharged from their obligations under the contract.
The government’s Budget, presented by the Minister of Finance the Hon Grant Robertson on 14 May has addressed, in the words of the Minister, “a 1-in-100 year health and economic challenge” as it moves to rebuild the economy post-Covid-19.
“With the outbreak of Covid-19, New Zealand now faces a 1-in-100 year health and economic challenge. The pandemic continues to evolve, and it has already caused enormous social and economic disruption. It has required agility on the part of New Zealanders, the Government included,” said the Minister.
Contracts are commonplace in business and life. A well-drafted contract can provide certainty and clarity for businesses and others by creating legal obligations for each party to do what they say they will. But what if a party to a contract doesn’t do what they promised they would? Are you allowed to penalise that party for not fulfilling their obligations under the contract? We will explore the enforce-ability of so-called ‘penalty clauses’ in light of a recent decision in the Court of Appeal.
What is a penalty clause?
It is common for businesses to try to reduce their risk of suffering a loss under a contract. One way businesses try to minimise their risk is by including a clause in the contract that requires money to be paid to them to compensate for loss if the other party doesn’t do what they promise.