Articles

The recent judgment against Robert Walker for a breach in the confidence and privacy rights of David Henderson a prior director of Property Ventures Limited is a timely reminder that even liquidators can be held liable for breach of privacy. In this case Mr Walker is required to pay $5,000 in damages. What rights do you have when you are dealing with a liquidator who has control of the company books and records? When a liquidator is appointed over a company, either by the shareholders or by order of the High Court, one of the first steps taken will be to locate and uplift the books and records of the company and to seek information about the business, accounts or…
It is, unfortunately, an all too common result of a company failure – customers who have paid a deposit for an item or service only to have the provider placed into liquidation before the goods or service are delivered, are left as unsecured creditors in the liquidation or receivership, with little likelihood of any recovery. Why are Prepayments Made? Prepayments by customers help give certainty to a business that the customer is genuine in their intention to complete the transaction proposed and will not leave the business holding unwanted stock or with preparation costs incurred that will not be met. Paying a deposit to a property developer when buying off the plans secures one of the planned properties in the…
Accounts receivable, or debtors, are recorded as an asset on the company balance sheet on the basis that they represent funds that will be paid to the company by customers in the normal course of business. That’s fine if the amount recorded is accurate and properly reflects the anticipated level of income but, if it isn’t accurate, it inflates the level of current assets and may be disguising the true financial position of the company and becomes a potential liability for the company’s directors. In a recent liquidation, the accounts receivable figure for the company, at the date of liquidation, was approximately $155,000 however, when the process of collecting the outstanding amounts was started, it was quickly discovered that the…
Receivership is where a Receiver is appointed to realise the assets or manage the business of a company for the benefit of the secured creditors. The primary duty of a Receiver is to get the best return for the secured creditor (usually the bank). Business survival may be an outcome. Receivership can result in the rescue of viable parts of a business. It can lead to the sale of certain assets or the sale of the whole of the business. It can also lead to the business ceasing to trade and company liquidation. Receivership differs from liquidation in that the assets are realised for the benefit of the one secured creditor who appointed the Receiver. In liquidation the assets are…
A Voluntary Administration (“VA”) is advanced where the company is cash flow insolvent or likely to become insolvent in the near future. No Court application is required to advance a VA. The Board of directors can appoint an Administrator by resolution (the Court, a liquidator or interim liquidator or a secured creditor can also appoint). If there is a winding up application (by a creditor) on foot, the Court will likely adjourn the winding up application if the Court is satisfied that it is in the interests of the creditors (Section 239ABV, Companies Act 1993). A business must be truly viable to be successfully rehabilitated. The appointment of an administrator for any other reason apart from rehabilitation is unlikely to…
What is a Shareholder Current Account? During the life of the company, funds taken out or put into the company by the shareholders is recorded to the shareholder current account. Usually at the start of a company, working capital is introduced. This balance is usually the opening balance of the shareholder current account. This is separate to the funds paid for share capital. A shareholder current account is a record of the net balance of funds introduced and withdrawn by the shareholder. This moving balance is recorded on the balance sheet and may fluctuate from being an asset of the company to a liability of the company. Drawings are recorded as deductions from the current account. Drawings are where you…
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…
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