Articles

A Part 5 Subpart 2 proposal under the Insolvency Act 2006 gives a debtor an alternative to bankruptcy.  If the proposal succeeds, then the insolvent is bound by the proposal and does not have to comply with the usual provisions of a bankruptcy.  For example, the debtor may carry on in business and have more than one bank account, and is not prevented from leaving the country. Proposals are called Part 5 proposals because they fall under Part 5 Subpart 2 of the Insolvency Act 2006.  The person who is subject to a proposal is called "the insolvent." A proposal is in effect a contract between a debtor and his or her creditors.  The insolvent may put an offer to…
This article discusses when to accept a company compromise, and suggests what modifications and amendments can be asked for, and when to reject a compromise. What is a compromise? A compromise is an agreement between a company and its creditors. Most compromises have two basic features. They provide:- That creditors are paid their debt in part or full over a period. If they are to be paid in part, then the creditors write off the balance of their debt That during the term of the compromise, debts are frozen and no creditor may take any action against the company A compromise as perceived by creditors It seems to us that compromises with creditors can make otherwise rational people break out…
When a person is faced with a bleak financial situation, bankruptcy may appear to be the only outcome. However, there are certain circumstances where this may not have to be the case. Part 5 of the Insolvency Act 2006 provides for alternatives for individuals facing bankruptcy - and the Subpart 2 proposal option can be very beneficial to affected parties. Potential benefits of the Part 5 Subpart 2 proposal As an insolvency practitioner with extensive experience in this area, I have acted as trustee for a large number of individuals and successfully negotiated terms with their creditors to the advantage of all concerned. I have found that the Part 5 Subpart 2 proposal option has become more popular for: insolvent…
The following are some issues which tend to crop up on many of our liquidations. Vehicles claimed by directors A minor, but often emotive issue, is the car "owned" by the director. The director states it is their car, and it is registered in their name. Registration, however, does not prove ownership and if the car is in the company's accounts and shown on the depreciation schedule, the liquidator will fulfill one of their principal duties by taking possession of the car and selling it. Share capital not paid up Under modern company law, shares have no nominal value. Too many times we hear that if a company has 1,000 shares then there is an obligation on the shareholders to…
McDonald Vague are solution providers for businesses at risk, and specialists in business recovery. We often deal with liquidations where the director has continued to trade an insolvent company. In many of those cases, prior to liquidation the director/shareholder has increased the mortgage on their house and advanced further capital for a short term cash flow fix without taking out any security for that advance. If funds are advanced to the company, the director/shareholder should seek legal advice on obtaining security and registering that security on the Personal Property Securities Register prior to the advance. CONCERNED ABOUT YOUR PERSONAL LIABILITY? TALK TO US IN CONFIDENCE If you are concerned your business maybe be trading while insolvent; or are worried about…
Many businesses are facing hard times in the current market. Your business might be one of them. Early action is critical in determining whether your business can be rescued or not. Taking steps to ensure your company remains financially sound will minimise the risk of an insolvent trading action. It may also improve your company's performance. There are serious penalties and consequences of insolvent trading including civil penalties and criminal charges. Insolvency can be established by either of the Cashflow or Balance Sheet tests. Note, importantly, that the company only needs to fail one of these tests to be insolvent. The Cashflow test is simply whether the company can pay its debts when they fall due for payment. If you are paying…
McDonald Vague provides a specialist service conducting solvent liquidations. Companies are often put into liquidation this way when a business has been either sold, closed down or reorganised for tax and/or management purposes.   Capital gains on company sales Under current New Zealand law, companies that have sold their business at a capital profit can then, on liquidation, distribute that profit to their shareholders tax free (arm's length transactions only) under Section CD26 of the Income Tax Act 2007. There is often debate as to whether a formal liquidation process is necessary to distribute tax free capital profits, or whether it is sufficient to simply have the company struck off the Companies Register. When large sums of money are involved,…
Question: How can a liquidator be removed from office? Legislation: The legislation which applies is the Companies Act 1993. Introduction Apart from the normal procedures, the office of liquidator also becomes vacant if the person holding office dies or becomes disqualified under Section 280 of the Companies Act 1993. This is the section which deals with qualifications of liquidators. For example, the office would become vacant if the liquidator were to be made bankrupt or were to become subject to a compulsory treatment order under the Mental Health Act. In normal circumstances however, a liquidator is removed from office in one of the four ways: - 1.Removed by Resignation A person may resign from the office of liquidator by appointing…
Question: Liquidators have different views regarding proxies and representatives of company creditors at creditors meetings. What is the correct procedure? Legislation: The legislation which applies is: The Companies Act 1993, Section 314 The Fifth Schedule to the Companies Act 1993, Clause 6 and Clause 9 The Companies Act 1993 Liquidation Regulations 1994, Regulations 23 and 27. Answer: An examination of the legislation shows that a company may be represented at a meeting of creditors in two separate ways (refer the legislation for full details): - Formally by proxy (in writing): The company may appoint a proxy. The proxy may be any person including the liquidator or if there is no liquidator, the chairperson of a meeting. Where the person appointed…
Rule number one in insolvency is to "secure the asset".The recent catastrophes around the world have had a dramatic effect on the New Zealand insurance industry and the ability to obtain insurance.  In particular the Christchurch earthquakes have made it more difficult and costly to obtain insurance cover for some of the properties and goods we need to secure.  We asked Geoff Blampied, CEO, Aon New Zealand to provide some comments and advice on the subject. Geoff writes: Global Perspectives Firstly, we need to look at the Christchurch earthquake losses from a global perspective in order to understand the issues.  Christchurch has now suffered three major quake losses and numerous aftershocks with total estimated insured claims of $26 billion.  These…
Are you likely to be forced to repay to a liquidator money previously received from a customer? It has become relatively common for suppliers and others to be challenged by liquidators to repay funds that they have previously been paid. Prior to the change of rules in late 2007, the contentious issue was determining what "the ordinary course of business" meant. The decisions surrounding liquidators' challenges did not discourage conventional or usual debt collection measures. Since the McEntee Hire decision in August 2010 we have observed an increase in liquidators sending out letters seeking to challenge transactions. It is disappointing that some liquidators seem to take an approach of challenging all payments made, rather than first considering whether there has…
Background McDonald Vague partners have been appointed receivers on a number of major appointments, including the recent receivership of Tawera Land Company Limited "TLC". This is an entity owning millions of dollars of farmland associated with bankrupt businessman Ken Thurston. Mr Thurston (formerly a director of 14 other companies) had a rocky financial period which reached its climax in October 2010 when he was adjudicated bankrupt. Since then a number of his companies have failed. TLC owned and operated significant land holdings in the Manawatu and Taumarunui regions comprising 15,000 acres. Over the past six months, our Agri-Business team has managed the farming operations which include a dairy farm as well as sheep and beef farms. One significant event was…
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