Christchurch earthquake: Lenient terms keeping firms afloat

Bankruptcies in Christchurch are expected. Photo / Mark Mitchell

The compassionate stance of trading banks will allay financial problems for quake victims, a credit bureau chief says, but more Canterbury companies might eventually declare bankruptcy in the longer term.

John Roberts, managing director of Veda Advantage, is confident victims will cope after more lenient terms were extended after February 22. He is not seeing any immediate rising tide of failure from the quake.

But struggling businesses might have to eventually file for voluntary bankruptcy and individuals use the no asset procedure regime, he said.

"Banks have put in pretty robust hardship systems which will help a lot of people. The next step will be for people to look at no asset, rather than bankruptcy. That will rise but I think everyone will be working hard to help," he said.

Banks have extended special help to home owners, insurance clients and their own staff, including allowing mortgage repayment suspensions for earthquake victims.

Emergency loans, mortgage repayment freezes, fee waivers on term deposit withdrawals, overdraft extensions and cheaper money are some of the measures the banks introduced last month to victims.

Roberts said this would go a long way to helping those suffering hardship, but he does expect some Christchurch businesses to file for bankruptcy.

Christchurch people unable to pay their debts were more likely to use no asset procedures as an alternative to bankruptcy, Roberts said, adding that the full financial consequences of the quake would emerge only with time.

"It's far too early to tell but without a doubt many people will have to restructure their only financial situation. Financial institutions will be tolerant and supportive for the first three months and after that they will have to sit down and ask if people have the ability to meet their commitments."

Receivership may be the most appropriate response for businesses, often established as limited liability companies, he said. Receivership meant struggling businesses were no longer liable for debts.

With about 400,000 small and medium-sized enterprises in New Zealand, Roberts estimated Christchurch could have 40,000 to 60,000 businesses and loans could be a concern.

"A lot of the small businesses use as a form of security, loans against any personal assets so their houses are in danger," he said.

New Zealanders were becoming more financially conservative, Roberts said, praising the trend.

"In the last 12-18 months, we've seen people tone down their credit behaviour. They pay down debt and we have seen outstanding balances on credit cards decline."

The Ministry of Economic Development offers advice on its website for businesses affected by the quake.

Options for those financially stretched are summary instalment orders, bankruptcy, no asset procedures or a formal proposal to creditors.