Business Debt Hibernation for FMA regulated entities and brokers
The Financial Markets Authority (FMA) has released information on the requirements for FMA regulated entities and brokers entering into the Business Debt Hibernation (BDH) scheme.
The link to the full media release is available online.
BDH has been introduced to help businesses affected by COVID-19 with liquidity, by allowing debts to be placed into hibernation for up to seven months.
See our previous note on the BDH purpose and processes and other relief for safe harbours for directors and companies affected by COVID-19.
Who needs to read it? Why?
This is relevant for all FMA regulated entities (and their directors) that may be eligible for BDH and are considering entering BDH.
The following entities are not eligible for BDH: sole traders, registered banks, licensed insurers, licensed non-bank deposit takers, licensed derivative issuers and operators of a designated settlement system.
What does it cover?
Entities entering BDH must meet certain requirements (such as director approval, sending an Entry Notice, getting creditor support and sending a Creditor Decision Notice).
In addition, the FMA has set out specific requirements and expectations which apply to those FMA regulated entities that are eligible to enter BDH.
- For FMA licensed entities (e.g. licensed fund managers, DIMS providers, crowd funding platforms, peer-to-peer lending platforms, market operators, supervisors, auditors, and qualifying financial entities (i.e. QFEs):
- BDH will be a material change of circumstances under the reporting requirement set out in section 412 of the Financial Markets Conduct Act 2013 (FMC Act). Accordingly, licensees must notify the FMA as soon as practicable after the licensee believes BDH is likely to occur, in accordance with section 412.
- After entering BDH, the FMA still expects entities to continue providing their licensed service to the market, in accordance with the terms of the relevant licence.
- For non-licensed entities (e.g. other issuers of regulated offers of debt or equity securities):
- Non-licensed entities may still have obligations under the FMC Act which must continue to be fulfilled. Entering into BDH does not remove these obligations. Some obligations may require proactive action, including where disclosure to investors is concerned.
- Non-licensed entities should engage with the FMA if there are any concerns with their ability to comply.
- For brokers providing broking services under the Financial Advisers Act:
- Any market participant entering BDH that is a broker 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.
- Throughout the BDH process, brokers are expected to adhere to broker trust obligations (as explained in the FMA’s guidance note) and comply with broker notification requirements under clauses 7 and 27 of Schedule 13 of the Companies Act 1993.
The FMA release is a timely reminder that while there is support and relief for entities affected by COVID-19, it is clear that the FMA continues to expect those entities to comply with regulatory requirements.
It will be very important that any entity considering using the BDH takes legal advice at an early stage to assist it to navigate through the requirements, without exposing the entity or its directors to additional risks.
If you have any questions in relation to the available relief for businesses affected by COVID, or financial services regulation in general, please contact one of our experts.