General

Q: Why does the Inland Revenue Department ("IRD") always get preference

The IRD only get preference for PAYE and GST as this is moneys held by the company "in trust" for the IRD. There is no preference for income tax penalties on any Tax, FBT, ACC etc. These rank as unsecured.


Q: How often does a liquidator have to report to creditors?

The statutory requirements vary under different circumstances. The liquidator is required to report to creditors every six months.


Q: What is the difference between a liquidator and a receiver?

A receiver is appointed by a secured creditor, generally a debentureholder. Although a receiver has a duty to preserve the rights of all creditors, a receivers powers are limited and once the debentureholder is repaid the receiver must cease to act.

A liquidator is appointed either by the shareholders, or by the creditors through an application lodged with the Court, or by the Court under statutory powers. A liquidators' powers are defined by the Companies Act 1993 and are much wider than those of a receiver.


Q: Why does it take so long for creditors to get any money back?

The liquidator must attend to many statutory requirements. Immediately after appointment a liquidator must take possession and secure the assets, then dispose of them for the best possible price. Debtors are frequently slow to pay once a liquidator has been appointed. There are statutory time limits to establish the full quantum and entitlement of creditors. It is a time consuming process and a number of matters have to be completed before any distribution is paid to unsecured creditors.


Q: The directors have started up in business again doing exactly the same thing. Is there a law against it?

There is no law that would prevent a person earning a living. It is up to creditors to be diligent in their dealings with any new venture whose principals have a bad credit rating. However, where directors are consistently involved with failed companies, persons can be barred from acting as directors in future, on application to the Ministry of Economic Development or the Court. There are also exclusions relating to Phoenix Companies.


Q: Is it legal for the directors to buy back the company's motor vehicle and/or other assets?

The liquidators job is to obtain the best price for assets sold. If a director shows an interest in purchasing any of the company's assets, the liquidator obtains an independent valuation in writing. As long as the sale to the directors is a commercial transaction and at the same price as if the article had been sold on the open market, there is no legal reason why such a transaction should not take place.