Safe harbour for directors; Virgin Australia shuts NZ base; Z Energy cancels dividend and talks to banks; Serko bounces on cost cuts

Safe harbour: Company directors might be sleeping a little easier now that the Government has provided clarity around the issue of reckless trading or trading while insolvent. The new ‘hibernation’ regime would give companies the option to either freeze debts for six months and keep trading, or to freeze the whole company for a six-month period.

Do you mind? However, directors will require the agreement of half their creditors by both number and the value of debts owed before they can invoke the six-month ‘hibernation’ process

Reprieve: The two relevant clauses of the Companies Act to which the safe harbour regime applies are Sections 135 and 136, which deal respectively with a prohibition on ‘reckless trading’ and a duty on a company only to incur ‘obligations’ – debts, liabilities, contractual arrangements etc – that it believes it will be able to ‘perform’ as they fall due.

Not so pumped: Z Energy is battening down the hatches, cancelling its final dividend, suspending all non-essential capital spending and is in talks with its banks for more working capital flexibility. Advising of a further narrowing in its profit guidance, it said on Friday its EBITDA for the March year just ended would fall between $355 million and $365 million, compared with the $350 million to $385 million signalled in December.

Third time around: It is the company’s third cut to its guidance within six months after previously lowering its forecast from a $390-$430 million range in September last year.

Slimming down: Shares in travel software company Serko rose 10.5 percent on Friday after the company said it would cut costs to shore up its financial position in the next 12 months. With $42 million in cash reserves on its balance sheet, it said it has plenty of liquidity and will not be impacted by travel cancellations as a result of COVID-19.

The company plans to use the current travel shutdown to further refine and develop its technology and will purse Government business subsidy programs in New Zealand, Australia and the United States to support employee salary costs. Serko shares have fallen 58 percent this year.

Exiting: Tourism Holdings (THL) is to exit its Togo joint venture with American manufacturer of recreational vehicles Thor Industries and instead focus on a digital strategy in both New Zealand and Australia. The deal would see THL diluted down to a 26.5 percent minority shareholder of Togo, though it would get exclusive rights to fleet management and booking systems and to the peer-to-peer Mighway platform in Australia and New Zealand.

The deal: Thor will pay Tourism Holdings US$6 million and has a four-year option to buy out the remaining stake for US$20m. Tourism Holdings is also entitled to an annual dividend of US$600,000 for four years. THL shares are down 72 percent this year.

Shutting up shop: Having announced the permanent closure of its New Zealand base a fortnight ago, Virgin Australia Airlines has issued redundancy notices to 550 flight and cabin crew staff. The move has been criticised by the E tu union who say the company should have applied for the wage subsidy and done more to ensure the continuity of employment and pay for their workers.

The company would temporarily stand-down around 8,000 of its 10,000 strong workforce after sharply reducing capacity since the start of the lockdown.

Near empty planes: Hong Kong based airline Cathay Pacific is used to carrying about 100,000 daily passengers. On one day last week it flew just 582 passengers. The airline says the outlook for the global travel industry is darkening and “intensifying” financial ramifications for its business. Having already slashed its passenger capacity for April and May by 96 percent the airline says it is preparing to make further cuts

Just five flights: Cathay says it will now operate only two flights a week in April to four long-haul destinations, including London, Los Angeles, Vancouver and Sydney along with three weekly regional flights to eight cities, including Tokyo, Manila and Singapore.

Shocker: Non-farm payrolls in the U.S. dropped by 701,000 in March, according to Labour Department figures released Friday that only begin to show the economic damage wrought by the coronavirus crisis. It was the first decline in payrolls since September 2010 and came close to the May 2009 financial crisis peak of 800,000. Some two-thirds of the drop came in the hospitality industry, particularly bars and restaurants forced to close during the economic shutdown. The household survey, which asks individual residences about their employment situation, showed a plunge of nearly 3 million jobs.

It’s only just begun: The report however fails to capture the full extent of the damage from the virus because of government methodology as its reference period was for the week ending March 12, which came just as the nation began its near shutdown. April data is expected to show the U.S. economy lost somewhere between 10 and 15 million jobs

Embarrassing: For a country that boasts some of the world’s leading technology companies and smartest minds, the problem of getting stimulus funding into the accounts of desperate small businesses in the U.S. is proving to be a challenge. Many customers complained of websites crashing on the first day and being required to have an existing loan with banks before they could apply. Small businesses, which employ nearly half of America’s private-sector workers, are haemorrhaging, and the loans are meant to help them retain employees or rehire those they let go because of the coronavirus pandemic.

Bank of America said it had received loan applications on the first day of the program totaling more than $US22 billion. Many borrowers are worried that the $US350 billion in federal funding could run out in a matter of weeks.

$30b in a week: By contrast, Switzerland unveiled its SFr20bn ($NZ40bn) package of emergency loans to support small businesses a fortnight ago. In its first week it disbursed more than SFr15bn to 76,034 businesses. Businesses complete a simple application online and the funds are deposited within 24 hours. Very Swiss!

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

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