Wage Subsidy not a Panacea

Each time I think I will give you a day off from reading my thoughts, the government comes up with something new that I feel is important to share.

Yesterday afternoon Jacinda Ardern (who I think has been demonstrating incredible leadership qualities through this crisis), made a statement that riled me and in my view was irresponsible on a number of levels. It related to the publisher Bauer closing its business in NZ. Ardern appeared to make a dig at the company stating they were asked “if they could take up the wage subsidy. They refused.”

Such a loaded statement, suggesting the employer didn’t do everything they could to save the business and somehow the wage subsidy was a panacea that could save it. To point out the bleeding obvious, wages are just one cost of continuing a business with or without revenue. We then have the issue of Director responsibilities. This is important to have at the forefront of your mind for all who are Directors of your own companies or other organisations, and where you may have people named as Directors who take no active role in the decision making. That includes your partners, husband, wife, other family members who are on the Companies Register as a Director even if they have never made any decisions about the business.

Directors have a number of duties, and when a company is facing the possibility of insolvency, they are at the greatest risk of personal liability for a breach of one of these duties. The primary duty is to act in the best interests of the company. Although Directors can take prudent business risks, they cannot make reckless business decisions that may prejudice a creditor. The Act also provides for a specific duty to creditors in terms of reckless trading.  A Director must not cause, agree, or allow the business of the company to be carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors.

A Director can be personally liable for a fine of up to $200,000 or up to five years imprisonment, for the breach of any duty required under the Act. Here is a link for more details

If you applied for the wage subsidy after 4pm on Friday 27 March, or haven’t yet applied and plan to, please remember that you are signing a declaration stating you will “retain the employees named in your application as your employees for the period you receive the subsidy in respect of those employees” and that before applying for the subsidy you have taken steps to mitigate the impact of COVID-19 “including but not limited to engaging with your bank, drawing on your cash reserves as appropriate…”

You need to ask yourself, can the business remain solvent for 12 weeks, incurring the ongoing costs, to keep your employees employed for that period? If not, applying for the subsidy may make things worse. Please don’t be ashamed or afraid to make decisions that protect you and your family. By all means do what you can for your employees, but not at any cost.