Articles

New Zealand's construction sector, has a string of serious issues that bedevil the industry. These problems are not just confined to the major construction companies themselves. They are having a seriously detrimental impact on the fabric of trade suppliers and sub-contractors that bind the industry together. Underpinned by Auckland and Canterbury’s buoyant growth builders should be comfortable. So, why are increasing numbers of construction companies collapsing and going into receivership, declaring insolvency or being faced with the prospect of liquidation? A Grim Roll Call While some firms continue to struggle dealing with leaky building and council compliance regimes, much of this problem can also be sheeted home to New Zealand construction firm’s apparent willingness to take on too much risk…
Employees’ Employment on Liquidation When a company goes into liquidation, all of the company’s employment agreements may be terminated. If the company has employees when it is put into liquidation, the liquidators will usually visit the business and inform the employees of the liquidation. And, employees who have outstanding entitlements will be notified of the liquidation in writing, which is normally sent to the employee’s last known email or postal address. If the liquidators continue to trade the business or they require the expertise of certain employees after the company’s liquidation, the company in liquidation will re-employ the employees they require for the period they are required, which could be anywhere from a few days to months. Employees who work…
You wouldn’t pick a tradie on price alone so why would you pick an insolvency practitioner solely on this basis? You expect your tradie to work to industry standards when working on your house or car so why wouldn’t you take the same care before you hand over control of a business to an insolvency practitioner, who will be dealing with your company, its assets, its creditors, and its stakeholders? Not all insolvency practitioners are created equal. They have different levels of experience and qualifications, work in different size firms, and may or may not be accredited. If you appoint the wrong insolvency practitioners, it can be difficult to remove them. If it’s shortly after appointment, the company’s creditors may…
All companies must keep company records, minutes, resolutions and a share register. This article discusses what is required and what can happen when there is a failure to maintain company, statutory and financial records. Failure to keep accounting records and to comply with Section 194 Companies Act 1993 can render director(s) liable to conviction for an offence. Failing to maintain books and records may cause a presumption of insolvency and directors could be held personally liable. Companies have an obligation to keep company records under S189 of the Companies Act 1993. Minutes, resolutions and financial statements must be maintained for the last 7 years. S190 of the Act requires that the records must be kept in a written form or…
Benjamin Franklin said, “There are only two certainties in life – death and taxes”. Whilst failure to pay the second shouldn’t lead to the first, it can cause significant problems for individuals, as outlined in a recent Court decision. Nicola Joy Dargie was sentenced to two years six months imprisonment for failing to pay PAYE deducted from employees’ salary to the IRD. Ms Dargie’s explanation for the non-payment of $740,000, which occurred over a period of 10 years, was that she had withheld the tax payments from the IRD to keep her employees in a job. It is a practice that we encounter on a reasonably regular basis in liquidations - directors using the amounts they have deducted from their…
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…
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