The Business Hibernation Plan ................................................................................. 3

Summary ................................................................................................................... 3

But First, a Little About Us........................................................................................ 3

Suspending or Reducing Your Commercial Lease ................................................... 5

Employment cost reduction ..................................................................................... 7

Do a deal with the IRD for outstanding tax ........................................................... 10

Payment plans with your creditors ........................................................................ 10

Recovering your debts ............................................................................................ 11

Next Steps: Get Help Now ...................................................................................... 13

TABLE OF CONTENTS

The Business Hibernation Plan

In this book we outline the legal playbook to hibernate your business in the era of Covid-19.

This playbook is aimed at helping those who have had their business turned off overnight due to this

pandemic. The aim for these businesses is to hibernate during this period so they can survive and go

on to thrive.

For those who can continue to trade, much of this book will also be relevant and usable as you too

must reduce expenses and increase cash in any market.

For those who are unable to survive using these techniques, or any other, we suggest an emergency

call with one of our experts, which will be free, to discuss your situation and the options available to

achieve the best strategic outcome. You can book a call with an expert here:

https://norlinglaw.co.nz/consultation-brent/

For regular updates, we will be uploading videos here: https://norlinglaw.co.nz/videos/ and

publications here: https://norlinglaw.co.nz/blog/.

Summary

In this book we will discuss:

The legalities around suspending or reducing the rent on your commercial lease.

How to reduce your employment costs.

How to do a deal with the IRD to remove interest/penalties and get on a payment

arrangement.

How to approach payment arrangements with your creditors.

How to recover debts in these turbulent times.

But First, a Little About Us

Our prime concern is to obtain favourable results for our clients. While we provide a number of

specialist services, ultimately we resolve complex commercial disputes.

Norling Law is a specialist Litigation and Dispute Resolution practice that has been (together with

Brent Norling) recognised in New Zealand Law Awards/Legal 500 for the quality and expertise of our

service since 2014 – 2020.

In 2019, Norling Law was a winner of Innovative Firm of the year.

One of our core practice areas is Insolvency and Restructuring.

We are experts in what we do. We do what we do well, and nothing else. We are firm believers that

lawyers have pockets of knowledge and that they should practice within those areas.

If we are not the right lawyer, we will communicate that early and make an introduction to the right

person who is an expert and can add maximum value.

We are passionate about the areas of law to which we practice and we are focused on delivering

exceptional results.

We are based on the North Shore, Auckland and our clients are across New Zealand and abroad.

As at the date of writing this book, the New Zealand Government has issued the stages it will use for

managing this pandemic. New Zealand will be in stage 4 for some time. All non-essential businesses

must close during this period.

We are isolated and for many, offices and other commercial buildings are left inaccessible. However,

does this mean that businesses must pay rent for the time when there is no access?

If the lease is on the standard deed of lease from the Auckland District Law Society, then there may

be reprieve.

Clause 27.5 of the standard deed of lease from the Auckland District Law Society provides that:

If there is an emergency and the Tenant is unable to gain access to the premises to fully conduct the

Tenant’s business from the premises because of reasons of safety of the public or property or the need

to prevent or overcome any hazard, harm or loss that may be associated with the emergency

including:

…

(c) Restriction on occupation of the premises by any competent authority.

Then a fair proportion of the rent and outgoings shall cease to be payable for the period commencing

on the date when the Tenant became unable to gain access to the premises to fully conduct the

Tenant’s business from the premises until the inability ceases.

Clause 47.1(d) defines an “emergency” to mean a situation that:

(a) Is a result of any event, whether natural or otherwise, including an … epidemic; and

(b) Causes or may cause loss of life or serious injury, illness or in any way seriously endangers the

safety of the public or property; and

(c) The event is not caused by any act or omission of the landlord or tenant.

In the present circumstances, it is highly arguable that there is an emergency within its meaning of

clause 47(1). This is supported by the fact that an epidemic notice has been issued under s 5 of the

Epidemic Preparedness Act 2006. Further, the current epidemic may cause loss of life and the event

is not caused by any act or omission of the landlord or tenant.

Assuming that there is an emergency and the tenant is unable to gain access to the premises to fully

conduct its business, then clause 27.5 states that the tenant would not be liable for a proportion of

rent and outgoings from when the tenant became unable to gain access until that inability ceases.

It is important to note that the operation of clause 27.5 does not require notice from the tenant. It

means that clause 27.5 operates automatically and it would be highly arguable for tenants to rely on

this clause for proportional rent and outgoings. What does this mean to tenants and landlords? If

you are the tenant, you are likely to argue that zero access requires $0 rent. Whereas the landlord

will want payment. They are of course storing your business assets during this time. For landlords,

this means that you need to anticipate this potential outcome and make provision for less rental

income.

Clause 27.6 of the standard deed of lease from the Auckland District Law Society provides a further

option by giving either party the choice of terminating the lease by giving 10 working days written

notice to the other if:

The tenant is unable to gain access to the premises for the period specified in the schedule; or

The party that terminates the lease can at any time prior to termination establish with reasonable

certainty that the tenant is unable to gain access to the premises for that period.

Accordingly, depending on the period contained in the schedules, the tenant might also be able to

terminate the lease.

It appears that the purpose of clauses 27.5 and 27.6 is to shift the burden of the cost of emergencies

to the landlord.

But what if you do not have a standard lease agreement that includes this provision? Maybe you

have an outdated lease or a bespoke lease that has not included this provision.

There is still hope. There are still arguments you can run. For example, the doctrine of frustration

may be of assistance to those without this clause. This doctrine does apply to commercial leases.

The doctrine of frustration of contract allows parties to be relieved of their legal obligations where

contracts have become impossible to perform. Frustration occurs where neither party has been the

‘defaulting party’ regarding their contractual obligations but it has become incapable of performing

the contract due to the circumstances. For example, it is highly arguable that the pandemic with

Covid-19 is an occasion that has frustrated many contracts.

Now each case is to be considered on its own merits. For example, some leases may deal with this in

the lease agreement and put frustrating factors on one party, for example the tenant. Careful review

of underlying documents is required.

Further, in some cases, affected contracts may contain a 'force majeure' clause, which might excuse

the parties from performing their obligations in the event of a specified occurrence outside of their

control. Commonly cited events include strikes, acts of war and epidemics. Whether or not a force

majeure provision is triggered by Covid-19 related events will depend upon the nature of the event,

the actual and practical effect it has on the parties' ability to perform and the language of the clause.

Accordingly, careful thought will need to be given before relying on a force majeure provision.

From here, parties need to consider what their objective is. Do they want to suspend rent payment

temporarily or terminate the contract permanently? The contractual terms will guide you, but these

must be considered in light of the circumstances.

We highly recommend that tenants and landlords work collaboratively during this period to ensure

they both come out of stage 4 lockdown commercially viable. In many cases, the commercial

relationship can continue once the dust settles as the reality for most landlords is that they are likely

to experience difficulty in finding replacement tenants during this time.

At this stage, it will not be viable to use lawyers unless your monthly rent exceeds $2,000 plus GST

per month.

The first consideration at this time is to assess whether the business is eligible for the employer

subsidy. There is lots of information on that, so we do not intend to be one of the hundreds of

businesses that repeat this information. You can find information on the Government website here:

https://www.workandincome.govt.nz/products/a-z-benefits/covid-19-support.html

A sad reality is that many businesses are going to need to reduce staff costs further as the

Government support is not adequate for the circumstances.

This is possible. It can be brutal for all concerned, but it is necessary for survival in many cases.

Trial Period Employees

These may be the simplest of all to deal with. Those on trial periods can have contracts terminated

with a relative ease. Last in, first out is often more popular with many business owners than letting

go long term and loyal employees.

Another alternative is to move these employees to casual contracts, which is possible while the

employee is still on a trial period. Not all employees would welcome this change, however, there are

some who would accept it.

Casual Employees

Where there are employees who are genuinely casual employees, there is no expectation of ongoing

work. Employers can deal with these employees by ceasing to offer work or limiting their work

hours.

“Genuineness” of the casual nature is key. They should have a casual agreement, irregular hours and

both parties can change hours as necessary. There are many factors to consider. If in doubt, seek

advice.

Permanent Employees

Broadly, there are two options.

Firstly, an employer could seek to deal with the arrangement by agreement. This involves a meeting

to discuss the issues. Outcomes could be:

A reduction in salary by agreement;

A reduction in hours by agreement;

Employees agree to take annual leave;

Employees agree to take unpaid leave; or

Employees agreeing to a combination of the above.

The second option involves the employer taking a more active approach which involves more

process to be effective. The second option is redundancy.

The parties owe obligations of good faith to each other. Therefore, the process should be done in

good faith. To effectively complete the process, the employers need to have a clear proposal that

they wish to make to the employees.

Make sure the redundancy proposal is based on sound business reasons and is clearly articulated. In

this case, business closure (or reduction) due to Covid-19 is a sound reason.

The employer should also ensure that the process and decision-making is compliant with the

procedures and criteria set out in any employment agreement or employer policy.

The employer needs to ensure that all relevant is disclosed to affected employees.

Next, the employer should give every affected employee a proper opportunity to give feedback on

the proposal before a decision is made. Only then, should the employer carefully consider employee

feedback and give reasons why that feedback is not accepted and proceed to make a decision.

Consultation prior to the decision is key. Employers need to ensure redundancy selection criteria are

rational and clearly explained and are consulted on.

So, lets break it down into simple to follow steps in the context of Covid-19:

Step one: Document the proposal.

Step two: Present the proposal to employees.

Step three: Gather feedback from employees.

Step four: Genuinely consider the feedback from employees.

Step five: Confirm the new structure – in writing and via a meeting.

Step six: Implement the change.

In these uncertain times due to Covid-19, the ‘normal’ rules on redundancy ought to be disregarded

to some extent. It is our view that the Courts should take a sympathetic approach to employers who

restructured due to Covid-19 and as long as the fundamentals are complied with, the timeframes

required for the process can be significantly truncated.

Where it is expected that the business will be able to return to its normal workload within a short

period after Covid-19 outbreak, it is recommended that the first option of agreement with

employees is explored well before proceeding to the redundancy process. As finding the right staff

after the outbreak might be difficult and this might slow the business down from returning to its

efficiency. However, where it is expected that the business will take a while to recover, proceeding

to redundancy might be a better option.

Tax relief and income assistance is available to people affected by the downturn in business due to

Covid-19. The IRD have a range of ways to help depending on your circumstances.

The IRD has discretion to write off interest and penalties and to enter into instalment arrangement

for payment. The IRD even has the ability to write off core tax in some cases.

Each case is very dependent on its own circumstances, but we can expect the IRD to be very

understanding on the difficulties facing business owners at this time.

As such, it is important that you continue to file returns and remain current in your tax obligations

whilst proactively communicating (in a meaningful way) with the IRD. Failure to file returns on time

and being cooperative with the IRD is likely to prejudice future negotiations with the IRD to seek a

relief.

If you are to make a proposal to write off tax, interest or penalties or enter into an instalment

arrangement, we recommend you get representation in doing so.

For some, cash just simply will not be available to pay creditors.

There is one rule here: Do not put your head in the sand. Communicate. Communicate.

Communicate. There is only one thing worse than not communicating and it is this:

https://norlinglaw.co.nz/aiovg_videos/public-service-announcement-to-debtors/

If you cannot pay, pick up the phone and discuss this with the creditor. Find a solution that is one

you both can live with. Some possibilities are:

A payment holiday until we are out of stage 4 to allow you to get your business fully

operational again;

A payment plan that allows you to pay out of your new version of cash flow; or

A deferral of payment for a longer period of time, but this may come with the provision of

security, so has downsides.

Creditors hate it when you do not communicate, so be up front. We also expect creditors to be more

cooperative and agreeable to negotiations during this difficult period.

Present your solution in a way that demonstrates the alternatives. For example, if they push for

payment now, it may be that they ‘cannot get blood out of a stone’ and so it may just result in a

liquidation where no one wins. Whereas if the creditor works with you, they get something out of it

that is better than liquidation.

Every case will be different.

This mission is crucial.

A business cannot operate if debtors do not pay.

You have two options, collect debts yourself, or get a professional to do it. Here are the 13 steps you

need to take should you chose to do it yourself:

Step one: Have a contract. Make sure all entitlements and obligations are crystal clear.

Step two: Make sure the contract is presented, agreed and signed.

Step three: Be very clear on the due date for the invoice. Make sure there is no ambiguity.

Step four: Remove any barriers to payment. Are you able to direct debit? Can you take credit card?

Can you give a link via accounting software (like Xero) to ‘pay now’.

Step five: If appropriate to your business, automate some of the follow-up emails.

Step six: Have a very firm internal collection policy and take the time to define what steps will be

taken as the debt ages. Remember, the older the debt, the harder it is to collect.

Step seven: Remember communication is key. Often, the person within your business with the client

relationship should be the person to follow up the payment initially. Use this as an opportunity to

get a commitment as to when you can expect payment. In this environment, acknowledge the

disaster we are in. It is hard for everyone. Demonstrate you care but also need them to meet their

commitment to you.

Step eight: Decide how long you will give the debtor to pay. 7 days? 14 days? 30 days?

Step nine: Stick to your word. If there has not been a payment when due and promised, follow up

again and ask when payment can be expected.

Step ten: Refer the collection to someone other than the person with the client relationship to

handle (either internally or externally). This demonstrates an escalation in seriousness. It is also

easier for someone without the relationship to have the ‘hard’ discussion that is necessary at this

point. That person will also be less likely to accept the multitude of excuses that are likely flowing at

this point.

Step eleven: If they still do not pay, communicate what you will do next. The promise you make

should align with the collection policy you have defined. For example, after 30 or 60 days overdue,

your policy may be to refer the debt to an external agency for collection or to commence legal

proceedings. At this point, remind them that they will be liable for all collection costs and interest as

per your terms of trading and that this will significantly increase the cost to them.

Step twelve: Again, stick to your word. If they don not pay. Refer it to collection. Or instigate legal

proceedings.

Step thirteen: Do not fail to follow through on any promise to take action. That will only water down

what you do next. It will give the debtor comfort that they can delay and deprioritise this debt (as

debtors usually are juggling numerous debts, not just one).

Over the years, Norling Law has proven to be one of the most effective debt collection lawyers in

Auckland, New Zealand.

We understand how debtors work. We understand that debtors do not pay for only one of two

reasons. They cannot or they will not. We quickly identify which category they fit into and tailor our

approach appropriately.

Where necessary, we employ an aggressive approach to the collection of debt to ensure our clients

are paid first. We also have a depth of knowledge in litigation strategies and processes to ensure

that your matter navigates the Court process quickly and efficiently.

You can also look at selling your debts to a debt buyer who will collect these debts at no risk or cost

to you. If you want a proven process, we recommend 90 Nine. If that path is of interest, you can

apply here: https://www.90nine.co.nz/apply-now

If you would like expert assistance with any of these matters or matters within our areas of practice,

do not hesitate to book a FREE legal consultation with one of our experts. On the legal consultation

we will discuss your circumstances, the options and solutions.

If you would like assistance to collect debts you can book a free discussion here:

https://norlinglaw.co.nz/consultation-brent/.