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Liquidation Timeframe There is no prescribed timeframe under the Companies Act 1993 dictating the duration of a liquidation of a company. It is largely dependent on how quickly the assets of the company can be realised and distributed. Where litigation is involved the liquidation can span years.  Liquidators however has a duty under the code of conduct to attend to their duties in a timely way. A company with no assets takes about 3 to 6 months depending on how quickly the liquidator completes his/her investigation into the affairs of the company. The length of time is subject to the complexity of the work. A simple liquidation could span the notice period (4 weeks) and the objection period (4 weeks) plus…
There are three rescue procedures in NZ, the compromise (Part 14), the Court approved scheme of arrangement (Part 15) – an option seldom used, and Voluntary Administration (Part 15A). Liquidation is not a rescue procedure. It is usually a terminal procedure. Liquidators typically trade only for a short term for the purposes of the liquidation. The purpose of liquidation is to realise and distribute assets, not business survival. Some companies however advance liquidation for the purpose of restructuring and to purchase back part of the business from the liquidator (at market value). Some companies advance liquidation with a known purchaser lined up to purchase the business in a clean structure. The consideration attributed is often pre approved by the secured…
A statutory demand is a claim under Section 289 of the Companies Act 1993. Failing to comply with a statutory demand or applying to set it aside within the specified timeframes will result in your company being deemed to be insolvent and liquidation may follow. A company is insolvent if it is unable to pay its debts when they fall due. Non-compliance with a statutory demand served on your company allows the creditor that served the statutory demand to apply to the High Court to appoint a liquidator. The most common basis for a company in New Zealand to be placed into liquidation by the High Court is from failure to comply with a statutory demand. If you receive a…
It is probably stating the obvious – but if you don’t ask your customers for payment for the goods or services you provide, there is a good chance they won’t pay you. A lack of cashflow causes issues for any business and particularly so for small businesses that operate on modest turnover and small margins of profit. It leads to the slow payment of creditors and can, if left unchecked, lead to the winding up of the business. The problem usually comes about, primarily in small businesses, when the owner is working in the business providing the goods and services etc during the week and the paperwork is done later if there is time. I am aware of one occasion…
Companies cease trading for many reasons including technological change, competition, ill health, directors’ retirement, ongoing financial problems, or simply because the company has sold its business or assets and serves no further purpose. When a business is profitable, a business can cease to trade following sale of its business or sale of its business assets and can resolve to wind up via a section 318(1)(d) procedure (known as the “short form removal”) or follow a formal solvent liquidation. In current New Zealand law, solvent liquidations are advanced to distribute capital gains and capital reserves tax free and to provide more certainty of finality. In insolvency, directors have a legal obligation to cease trading in accordance with insolvency laws and to…
The Tax Working Group at recommendation 61 have said for closely held companies, that IRD should be granted the ability to require shareholders to provide security to IRD if debt is owed by the shareholders to the company and the company owes debt to IRD. This enhances the position of IRD in insolvency and essentially breaks the corporate veil. Accountants need to monitor the current account positions of their clients and ensure that dividends and salaries are being declared to ensure current accounts are not overdrawn. Recommendation 61 provides:61. that, for closely held companies, Inland Revenue have the ability to require a shareholder to provide security to Inland Revenue if:(a) the company owes a debt to Inland Revenue.(b) the company…
A critical element of having a shareholder’s rights protected is how their exit rights are defined. In a publicly listed company, an aggrieved shareholder can simply sell their shares through the Stock Exchange to quit their shareholding in the company. However, it’s not quite so straightforward and simple for minority shareholders to dispose of their shares in a private company. This is particularly so if the company’s Constitution limits its shareholders’ ability to sell or transfer their shareholding. Hence, exit clauses are commonly included in the Shareholders’ Agreement to enable all private company shareholders to sell their shares and quit the business in a way that is equitable for all the company’s shareholders. Exit Strategies For Minority Shareholders Are you…
Even in New Zealand’s currently comparatively benign economic conditions, some businesses inevitably find themselves struggling to survive. If you want your business to survive and then flourish, you need to put a business recovery plan in place. Managing a struggling business is stressful and demanding on directors, management and staff alike. The thought of impending failure is emotionally taxing on all stakeholders. Gambling on the business’ success with money from your family or friends, or extending credit with suppliers just to get by is often a poor strategy. Hope is never a reliable method.Moreover, the ethical challenges involved in risking other peoples’ money is a major stressor for most people.   Why Businesses Find Themselves Struggling Businesses can often struggle…
INTRODUCTION One way of dealing with difficult shareholder disputes is to have an independent party control and sometimes deal with the company assets, while the dispute is worked through. This allows the parties to focus on the dispute without further issues arising from current trading. Such a reliable independent party is a liquidator (solvent liquidation). CASE STUDY We were appointed by the High Court as liquidators of a solvent company to resolve a shareholder impasse. Two shareholders owned 70% and 30% respectively of the company shares. The companies only asset was its ownership of all the shares in a trading subsidiary company. The directors were in dispute on the management of this company. The liquidators needed to control the subsidiary…
Section 15 of the Companies Act 1993 states that a company is a separate legal entity, in its own right, separate from the shareholders, and continues in existence until it is removed from the New Zealand Register. Effectively that means it has the rights and obligations of person. It can own property, carry on a business, initiate legal action etc. It is also responsible for its actions and can be sued. The use of the company structure, with its separate identity, allows people to operate more than one business at the same time but keep the assets and liabilities of those separate businesses apart – so one business doesn’t drag the other down. CASE STUDY We were appointed as receivers…
So, yet another year is gone and a shiny fresh new year beckons. Will 2019 offer small business owners an opportunity to absorb the lessons from the best strategies and business results of 2018, and plan effectively for this year? Of course, business doesn't trade in isolation and small business trends are continually evolving. Whether the major small business trends are in customer service, marketing or technology, business owners need to understand the prevailing external factors in order to fine-tune their internal operations. Of course, some trends will have more of a direct impact on your business, than others regardless of your niche. However, the key is how you embrace and adapt them to your business’ needs and how successfully…
As it is in all areas of business, when you are seeking advice or input on insolvency matters it is important to go to the right source. There are lawyers and accountants that specialise in insolvency but, depending of the circumstances, and what you are looking to achieve, who you choose is important. Under the current legislation, the Companies Act 1993, anyone, without conflict of interest, and with a few other exceptions, can take an appointment as an Insolvency Practitioner and be appointed as liquidator or receiver of a company. They do not have to have any formal qualification and do not have to be registered or subject to any particular code of conduct. This situation is likely to change…
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