Articles

There is risk and responsibility that comes with being a director.  Sections 131 to 145 of the Companies Act 1993 (the Act) set out directors’ responsibilities and duties owed to both the company and third parties.  In the event of business failure by liquidation or other means, if any action is taken for breach of these sections of the Act, it generally falls to insolvency practitioners to act. Whether the insolvency practitioner decides to take any action for breach of directors’ duties is commonly assessed on a case-by-case basis, taking into consideration the likely recovery weighed against the cost of the action and the evidence available to support the action. The ability to pursue a director, however, is not limited…
Dealing with non-payers can be like ‘pulling teeth’. Cash, however, is the lifeblood of business and most business owners cannot afford to sit back and not take action. We cover our top tips for taking control of your debtors... The good news is that you can take steps (with Court proceedings often a last resort) to improve your cash flow and disincentivise your clients from treating you like a bank. We all know court can be an expensive and time consuming process and can spell the end of a business relationship. A formal demand can also damage your relationship with your customer and, if you suspect insolvency, potentially place you in a difficult position with the liquidator seeking to ‘claw back’ that…
Due to both a lack of sufficient legislative regulation and in order to bring New Zealand Insolvency Practitioners further in line with Australia and other jurisdictions, the Restructuring Insolvency and Turnaround Association of New Zealand (RITANZ) working alongside Chartered Accountants Australia New Zealand (CAANZ) has developed a framework of self-regulation. Under the various acts Insolvency Practitioners are charged with administering, there are only negative licensing regimes in effect. These regimes only exclude individuals from acting as Insolvency Practitioners if they fail to meet a specific set of criteria. These include the Insolvency Practitioner being: over the age of 18; of sound mind; not currently an undischarged bankrupt; and having no continuing business relationship with the insolvent company.   This new framework requires…
Amongst the director duties imposed by the Companies Act 1993 ("the Act") directors must keep proper accounting records (section 194), and their remuneration must be properly authorised by the board and recorded in the company's interests register (section 161). Without proper accounting records directors' ability to perform their other duties can also be affected. If directors fail to perform their duties they may face fines, personal liability for company debts, or orders to compensate the companies concerned for losses caused. The case of Madsen-Ries and Vance v Petera [2015] NZHC 538 dealt with various breaches and remedies in respect of directors' duties, and the judgment is well worth further study for both directors and insolvency professionals. Madsen-Ries and Vance v Petera [2015]…
One of the first tasks facing liquidators after their appointment is to ascertain and communicate with those people and entities who can rightly register a claim in the liquidation as a creditor. Generally, this information will be provided by the directors of the company, along with copies of unpaid invoices or statements on the individual accounts, but not all eligible creditors are that easily identified. Section 303 of the Companies Act 1993 ("the Act") sets out the admissible claims in a liquidation - Claims admitted - Subject to subsection (2) of this section, a debt or liability, present or future, certain or contingent, whether it is an ascertained debt or a liability for damages, may be admitted as a claim…
With power comes responsibility, and the duties imposed on company directors are extensive and onerous. Whilst business is brisk and revenues swell, breaches of directors’ duties often go unnoticed and without serious repercussions. When fortunes change, a director’s conduct, even years before, can come under close scrutiny from various quarters. As matters go from bad to worse, these parties include shareholders, creditors, receivers, liquidators and regulatory enforcement. Section 126 of the Companies Act 1993 (“the Act”) widely defines directors; effectively including shadow and silent directors, as well as those who although not duly appointed, exercise certain powers of a director. Calling to account Under the Act, liquidators have extensive powers to investigate the affairs of failed companies and the conduct…
An increasing number of building firms "went bust" in 2014 despite the building boom in Christchurch and Auckland, leaving homeowners, contractors, and the taxman out of pocket.  As the construction boom in Auckland gathers pace the situation is going to get worse. Nearly 100 rebuild-related companies have gone into liquidation or receivership in Christchurch alone since the February 2011 earthquake. We see the same trend occurring in Auckland. People often ask us why so many building firms are going under as they should be making a fortune.  The simple answer is that the good ones are, but there are many that have been caught out by over trading (transacting more business than the firm's working capital can normally sustain), thus…
Creditors of companies that fail are often shocked and angered by the ability of directors of the failed company to start up a new business and carry on as though nothing happened. They cannot accept that they are suffering because of the losses they are facing whilst the people they see as being responsible for the losses appear to suffer no ill effects. Who is at fault? It is important to note that the debt owed to the creditor is owed by the company, not the directors personally.  A limited liability company has its own separate legal identity and it is generally only when the directors have given personal guarantees in favour of particular creditors that they become personally liable…
Part 2 of 2   Following on from our earlier article dealing with how liens over company records are treated in a liquidation, we will now cover how liens are dealt with in receiverships and bankruptcies, and how to handle a lien held over the assets of the entity. Bankruptcy lien over records and documents Upon the adjudication of a bankrupt all of their property is vested in the Official Assignee under Section 101 of the Insolvency Act 2006.  For those records that are not in the possession of the Official Assignee a written request is made for their surrender under Section 171 of the Insolvency Act 2006.  This request encompasses any document that relates to the bankrupt's property, conduct,…
Workplace investigations can detect the source of lost funds, identify employee misconduct and possible culprits, as well as help recover losses.  They are usually undertaken when there is alleged employee misconduct, or a rumor of something amiss comes to the attention of the employer which requires action. Investigations must be undertaken in a fair and reasonable manner without bias. Investigations into employee misconduct can cause significant problems.  They can also be expensive, time-consuming and disruptive to organisational morale.  Investigations which are not conducted in an ethical and transparent manner, with the utmost care and confidentiality, can lead to a number of legal issues and other unexpected complications.  Well-done workplace investigations can provide a solid defence to legal challenges raised by…
The solvency test is not required to be met each day a company trades.  It is required for certain transactions including distributions and dividends and requires the company to demonstrate it can meet two tests.  These tests are the trading solvency/liquidity test and the balance sheet solvency test.   To satisfy the solvency tests, a company must be able to pay its debts as they become due in the normal course of business; and the value of its assets must be greater than the value of its liabilities (including contingent liabilities). One objective of the solvency test is to control all transactions that transfer wealth from a company.  In a liquidation context, where transactions have occurred when the company did not…
Part 1 of 2  Having a customer go into liquidation is never appreciated.  There is a potential loss of profit, and as such, creditors generally seek to secure and protect their situation through whatever means necessary. In a perfect world, the creditor will be secured by way of a perfected security interest under the Personal Properties Security Act 1999 that leads to gaining a super priority to recovery of equipment or to unpaid stocks and potentially a recovery from proceeds relating to those unpaid stocks.  However, often there is no security and no assets on liquidation. On occasion, however, the creditor will find themselves in possession of company assets and records over which they have no registered security, and the…
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