Company liquidation can have significant ramifications not only for the business itself but also for its directors, particularly concerning their credit ratings and overall financial standing. When a company faces insolvency and enters into liquidation, directors may find themselves confronted with various challenges and consequences that extend beyond the dissolution of the company. In this article, we explore the impact of company liquidation on directors' credit ratings, the broader implications of association with an insolvent company, and strategies directors can employ to mitigate the effects.

Impact on Directors' Credit Ratings:

One of the immediate concerns for directors following company liquidation is the potential impact on their personal credit ratings. While company liquidation itself does not directly affect directors' credit scores since company and director are separate legal entities, it can indirectly influence their creditworthiness in several ways:

Personal Guarantees: Directors who have provided personal guarantees for company debts may see their credit ratings impacted if they fail to fulfil these obligations following liquidation. Defaulting on personal guarantees can result in negative entries on directors' credit reports and lower credit scores.

Credit Applications: Directors associated with a company that has undergone liquidation may encounter increased scrutiny when applying for personal credit, such as loans or mortgages. Lenders may view past involvement with a failed business as a risk factor, potentially affecting directors' ability to secure credit on favourable terms.

Creditworthiness Assessment: Creditors and financial institutions may consider directors' involvement in a liquidated company as part of their overall creditworthiness assessment. Past insolvency proceedings may raise concerns about directors' financial management skills and reliability as borrowers.

Other Impacts of Insolvent Liquidation Association:

Beyond credit ratings, directors associated with a company that has faced insolvent liquidation may experience various other consequences:

Reputation Damage: Involvement in a failed business can tarnish directors' professional reputations and credibility within their industry. Negative perceptions of past business failures may impact directors' ability to secure future employment or business opportunities.

Legal Obligations: Directors have legal duties and obligations under New Zealand's Companies Act 1993, including responsibilities during the liquidation process. Failure to fulfil these duties may result in legal liabilities and potential disqualification from serving as company directors in the future.

Personal Financial Loss: Directors may face personal financial losses resulting from liabilities incurred during the operation of the insolvent company, such as unpaid debts, legal claims, or liquidation expenses.
Duration of Insolvency Status on Debt Collection Agency Registers:

The duration for which insolvency status remains on debt collection agency registers can vary depending on several factors, including the type of insolvency procedure and the policies of individual credit reporting agencies. Generally, records of insolvency proceedings, such as liquidation or bankruptcy, may remain on credit reports for up to seven years following the date of the event.

Mitigating Strategies for Directors:

While the aftermath of company liquidation can be challenging for directors, there are proactive steps they can take to mitigate the impact on their financial standing and reputation:

Seek Professional Advice: Directors should seek guidance from legal and financial professionals to understand their rights, obligations, and options following company liquidation.  Personal guarantees for example can be settled with repayment plans, full and final settlement Deeds, Part 5 subpart 2 proposals. 

Rebuild Creditworthiness: Directors can take steps to rebuild their creditworthiness over time by demonstrating responsible financial management, maintaining a positive payment history, and addressing any outstanding debts or obligations. 
Focus on Personal Development: Directors can use the experience of company liquidation as an opportunity for personal and professional growth. Investing in education, training, and skills development can enhance directors' capabilities and strengthen their prospects in the job market or entrepreneurship.

Transparent Disclosure: When applying for new business ventures or financial products, directors should be transparent about their past involvement with a liquidated company. Providing context and explanations for past business failures can help mitigate concerns and build trust with stakeholders.

In conclusion, directors facing company liquidation must navigate various challenges, including potential impacts on their credit ratings, reputation, and financial standing. By understanding the implications of insolvency, seeking professional advice, and adopting proactive strategies, directors can mitigate the effects of liquidation and position themselves for future success in their personal and professional endeavours.

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Many companies find themselves facing financial distress and unable to sustain operations. Voluntary liquidation is a viable option for directors and shareholders to wind up the affairs of the company in an orderly manner. It is imperative to understand the process and implications in the legal landscape, governed primarily by the Companies Act 1993 and the Personal Property Securities Act 1999.

Understanding Voluntary Liquidation:
Voluntary liquidation is a process initiated by the directors and shareholders of a company when it is deemed insolvent or unable to meet its financial obligations. This process involves the appointment of a liquidator, whose primary role is to realize the company's assets, distribute proceeds to creditors, and ultimately dissolve the company.

Steps of Voluntary Liquidation:
1. Appointment of Liquidator: The directors convene a meeting of shareholders to pass a special resolution for the appointment of a liquidator. The appointed liquidator must be a licensed insolvency practitioner.
2. Realization of Assets: The liquidator takes control of the company's assets, which are then liquidated to generate funds for the settlement of outstanding debts.
3. Payment of Creditors: Creditors are paid in a specific order of priority as outlined in the Companies Act 1993. Secured creditors with registered security interests under the Personal Property Securities Act 1999, are typically paid first, followed by preferential creditors, such as employees for wages owed. Finally, any remaining funds are distributed among unsecured creditors. Specific Security holders have super priority to their unpaid and traceable stock/equipment and possibly into proceeds thereof.
4. Distribution to Shareholders: If any funds remain after the payment of creditors, they are distributed among shareholders in accordance with their rights and interests.

Liquidator's Remuneration:
Liquidators are entitled to remuneration for their services typically determined based on the time spent on the liquidation process and vary depending on the complexity of the case. Chargeout rates vary depending on the practitioner engaged and how work is allocated amongst team members. The remuneration may be limited to the unencumbered company assets and/or an agreed advance from the shareholders. Not all companies have assets available to fund the liquidation.

Recovery of Overdrawn Current Accounts:
Directors often have current accounts with the company, which may become overdrawn due to loans or advances taken (drawings) and sometimes arising from the failure to declare a salary at the end of the financial year where tax is paid personally. In the event of liquidation, these overdrawn amounts are generally treated as loans to the directors and are recoverable by the liquidator. These are often negotiated and sometimes can lead to bankruptcy proceedings when a director makes no attempt to cooperate or repay funds.

Pursuit of Personal Guarantees and Other Avenues of Recovery:
Often directors have provided personal guarantees for company debts. In this case the guarantee and shortfall may be pursued directly by the supplier/creditor.
Liquidators investigate other forms of recovery for the benefit of creditors such as transactions conducted prior to liquidation, including insolvent transactions and transactions at undervalue. Directors duties are also considered.

Limitation Periods and Sanctions:
Liquidators are subject to limitation periods for initiating actions to recover assets or challenge transactions. These limitation periods vary depending on the nature of the claim and are outlined in relevant legislation. If a liquidator is successful in a claim, sanctions may be imposed on the responsible parties, including directors and third parties involved in transactions that are deemed improper or fraudulent.

Directors obligations:
Directors have an obligation to assist the liquidators and to provide books and records and information on the affairs of the company. Directors have been found liable for breaching their duties by failing to assist the liquidator in the collection of outstanding debts, highlighting the importance of proactive cooperation with the liquidation process.
By adhering to these duties, directors can mitigate risks and contribute to a smooth and orderly wind-up process, ultimately maximizing the outcomes for creditors and stakeholders and reducing personal guarantee exposure (the greater return in the liquidation reduces the shortfall on the guarantee).

In conclusion, voluntary liquidation is a significant step for directors and shareholders of financially distressed companies in New Zealand. Understanding the legal framework, responsibilities, and potential outcomes is crucial for navigating this process effectively and ensuring compliance with regulatory requirements. By seeking professional advice and guidance from licensed insolvency practitioners, directors and shareholders can navigate the complexities of voluntary liquidation with confidence and integrity.

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In our 40th Insolvency by the Numbers, we look at our data set for March 2024. We review at how the month has tracked compared to prior months and years.

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

March 2024 insolvency appointments continue the trend seen last month being notably up in March 2023. Total appointments for the month were 291, this is 26% higher than 2023 and almost double each of the years back to 2019. March 2024 is 144 appointments above the long-term average of 147 monthly appointments.

2024 continues showing strong appointment figures exceeding the last 7 years for the cumulative total of the 3 months to date. As predicted March figures were up and we expect that they will be revised higher in our next article as late advertisers continue to come in over April, this occurs every year especially around solvent appointments.

We continue to see an increase in enquiries as we enter the 2nd quarter of the year. This continues to be a combination of formal insolvency appointments and informal insolvency advice and work outs.

As a percentage spread compared to the average, we have seen solvent liquidations in line with previous March figures. As a percentage, appointment types were in line with the long-term average with slight rises in Voluntary Administrations and Receiverships appointments driven largely by 2 large group appointments of each type.

We expect increase in appointment numbers detailed above to continue throughout 2024.

Winding Up Applications

March 2024 saw a significant flux, with a total of 85 winding-up applications tallied. Among these, 33 were attributed to company winding-ups, while 52 were linked to proceedings initiated by the Inland Revenue Department (IRD). This data signifies a noticeable increase compared to March 2023, which recorded 56 total applications.

It has now been 12 month since the IRD advertised less winding up applications than every other non-creditor combined. The IRD continues its drive to collect the current level of arrears from delinquent debtors.

This marks a notable escalation from March 2023, which saw 56 applications in total. While there has been a drop away from February’s highs this is in line with past years but was also likely the result of the easter long weekend falling into March of this year rather than April as it has in past years allowing for less advertising days in the month.

Personal Insolvencies – Bankruptcy, No Asset Procedure and Debt Repayment Orders.

In February 2024, there were 58 bankruptcy filings, 34 no asset procedures, and 7 debt repayment orders, totalling 99. Personal insolvency figures remain stagnant as seen over the past few years. We expect that we will not see a significant rise in personal insolvency till into the 2nd half of 2024.

Where to from here?

The signs continue to point to the NZ economy being in for continued pain for the foreseeable future with it likely to get worse before it gets better, we foresee continued rising appointments when compared to prior years months as the year progresses. The OCR is unlikely to be dropped in the next 6 months potentially 1 year and inflation continues to be above the target of 2% and may be for some years with non-tradable inflation refusing to come under control.

If you want to have a chat about any points raised or an issue you may have you can call on 0800 30 30 34 or email This email address is being protected from spambots. You need JavaScript enabled to view it..