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COVID-19 The Ultimate Disrupter

The way we obtain our music, source our goods, find answers or gossip has never been the same since iTunes, Amazon, Google and Facebook became part of our lives. While they were disrupters to what came before them, they will pale in significance to the consequences of COVID-19.

The New Zealand government’s treatment of the crisis, as it strives to keep things going through the pandemic, is to be admired. The aim is for normality to continue as much as possible, so that when the lockdown comes to an end, we can quickly return to our pre-pandemic existence. There shouldn’t be any complaint about that objective – but the likelihood of it being achieved is remote. It’s more likely that the recovery will be a long and painful experience for many businesses.

Major events like the Christchurch earthquake, the Boxing Day tsunami and Cyclone Winston caused social and economic havoc. So too will COVID-19 – but with two significant differences. The first is that the impact will be national, not local. The second is that the damage will be economic, not physical. The challenges of rebuilding a country’s economy, with major dislocation of supply and demand dynamics, will be much more difficult than restoring physical infrastructure. Also, reconstruction of physical items improves employment opportunities, while the rebuilding of the economy will result in job losses.

In the future, we should expect that the new ways of communicating – which many of us discovered for the first time while working remotely – will shape our approaches to business needs and client interactions. As social distancing lifts, it’s unlikely that we will see a complete return to old practices. Employers will see savings through cost efficiencies, and employees will benefit from more flexible work conditions. The new normal for businesses and their employees is likely to be a hybrid of the old and the new.

Post COVID-19, the economy will need rebuilding. We will want to preserve the standard of living that existed before the crisis. For that to occur, New Zealand needs international trade to be re-established as quickly as possible. But that will be easier said than done, given the enormous disruption that our major trading partners are experiencing. In some cases, this has been made worse by their slow response to the crisis.

Economies in many countries are likely to be focused internally, at least in the short term. Additionally, it is likely that fear of reinfection will see entry across borders filtered by country. There could also be more stringent enforcement measures, regardless of which country the traveller has come from. For an example of what could be expected, reflect on the border controls that came into existence in the aftermath of 9/11.

New Zealand has an enormous opportunity to rebuild its economy on the back of the new way of thinking and acting. As a country we are likely to be earlier in the post-crisis recovery curve. As individual businesspeople, we New Zealanders are nimble on our feet and inspirational when it comes to solving problems. As a nation, we have a commendable focus on renewability.

Because of New Zealand’s adaptability and earlier recovery, we will be well positioned to cross borders virtually. We will be able to provide goods and services to a world that will pay much more attention to the message that business must stop exploiting the planetary reserves for commercial gain. How exactly revival will be achieved within this new context will be unique to each business and its directors.

Sadly though, the full impact of COVID-19 will bring about many instances of insolvency. Even though reigniting the economy will be a major focus for government, it cannot promise that all businesses will survive. Each business will have its own difficulties, and directors will need to deal with their company’s issues as best they can.

If the company has become insolvent, restructuring its affairs will be required if it is going to avoid liquidation. Voluntary Administration is a rehabilitation model that aims to restore the business back to viability. It is an alternative to liquidation or, more specifically, it is a process that seeks to defeat the terminal nature of liquidation.

Voluntary Administration is a collective process where all parties’ interests, both creditors and shareholders, are brought to account in a reconstruction and recovery plan. There are many dynamics involved. The most significant is that the creditors are forced into a circumstance that is not of their wish nor of their doing. However, the collective bargaining that the Administrator can initiate will be better than liquidation.

The end goal of Voluntary Administration is a functioning and viable business that is remade on the back of market demand, director commitment and the perseverance of its creditors. This is a much more admirable goal than dissolution and the payment of a small dividend that results from the sale of the business in a break-up.

The COVID-19 crisis will disrupt the economy; that cannot be avoided. Some businesses will re-emerge easily and take advantage of a resurgent demand. Others will struggle as they find that demand for the goods and services, they have relied on, has shifted. The most vulnerable, though, are the businesses that were hanging on by their fingertips before the pandemic. If those companies are to survive then early response will be vital, while there is still empathy for the circumstances that have been triggered by COVID-19.

BWA Insolvency Limited are providers of insolvency services with a focus on business rehabilitation by using the legal model known as Voluntary Administration.

Go to www.bwainsolvency.co.nz for further information.

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