Articles

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…
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…
Introduction A Chartered Accountant providing business services arrives at results through double entry bookkeeping. That is, for every debit there must be a credit. That same accountant, although they are excellent at their job, may be confused if they are asked to draw conclusions from inadequate records. On the other hand, the forensic accountant thrives on inadequate records and is used to coming to conclusions by drawing information from different places and bringing it together to a meaningful conclusion. One of the duties of a liquidator is to realise the assets of a company. Often those assets take the form of a claim against someone who has defrauded a company. For a liquidator to do their job properly they must…
When commencing a receivership we often expect that it will involve a relatively straightforward sale, realisation and distribution process. However, it is increasingly common in these economic times for the receivers of an insolvent company to be considering and dealing with not only its creditors' interests but the positions and creditors of other, potentially competing, insolvent entities. The factual scenario Matakana was a winemaker. It had a related company, Goldridge, whose role was to market the wine. The Vintage companies ("Vintage") were set up to raise money from outside lenders and to hold that money to be paid when invoiced for the cost of the grape juice and for bottling the wine, and then supply the bottled wine to Goldridge.…
Introduction In August 2011, the High Court issued an important decision in Burns v Commissioner of Inland Revenue on the widely argued question of "what is an account receivable?". This followed an earlier decision (re Northshore Taverns, 2008) in which the High Court decided that "accounts receivable" amounted to "book debts" only. This may sound like an academic point, but it is very important in determining which creditors receive distributions from the various sources of funds realised in a receivership or liquidation. The decision has positive implications for employees and the IRD as preferential creditors, and negative implications for General Security Agreement ("GSA") holders and guarantors. The legal issue The Seventh Schedule to the Companies Act 1993 sets out the…
Introduction It is now almost ten years since the Personal Property Securities Act 1999 ("PPSA") was enacted. Despite this, in our insolvency work we still regularly come across suppliers who have not performed the necessary registrations, and as a result lose priority to other creditors. This is highly unfortunate, given that a PPSR registration is simple to do and costs only $3.07. A PPSR registration is a little like income protection insurance - not terribly exciting to think about now, but it can make all the difference if the unexpected happens. We encourage all our clients to check that they, and their own clients, are fully conversant with this vital area. In this short article we attempt to explain the…
Business involves hard work and a bit of luck (or magic, given that only 29% of new businesses survive their tenth year). When things go wrong, a news release or a prosecution does not help creditors. Money in the hand does. Dear Peri Just a quick note to say you have restored some of my confidence in human nature. I received $438.75 from the liquidation of [name removed]. Funds we thought we would never see again. Thanks Steve Remedying the situation monetarily is, however, interesting in a liquidation. Commonly, particularly in a High Court liquidation, any tangible assets of material value have been disposed of prior to liquidation, and the directors may be facing the prospect of bankruptcy. The unsecured…
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…
Many of our clients don't deal with insolvency on a daily basis, and therefore have only a fairly generalised idea of what we do. This article seeks to provide a better understanding of how the liquidation process works. It also demonstrates how choosing the right insolvency practitioner can result in funds being recovered for creditors that would otherwise not be available.   The liquidation process  Most people have a basic intuitive feel for a liquidator's role. This is usually that he or she closes down a business, dismisses staff, sells assets and collects debts. This may well be true, but generally such activities form only part of a much more involved process. Liquidators have very wide powers to investigate a…
Usain Bolt flashed through the 100 metres at the London Olympics in 9.63 seconds - a new Olympic record. Imagine the uproar there would have been if, at the end of the race, the officials had asked, 'What is the current record?' only to be told, 'I don't know. It's not written down anywhere. From memory it's about ....' Accurate records need to be kept for many different reasons, and in relation to companies the requirements are set out in the Companies Act 1993 and also the Tax Administration Act 1994. Accounting records to be kept - Section 194 Companies Act 1993 The board of a company must cause accounting records to be kept that - Correctly record and explain…
With the recent activity in high profile prosecutions of company directors by the Serious Fraud Office ("SFO"), we thought it opportune to revisit a case in which our firm was involved highlighting the point that it is not only the high profile directors that pay a heavy penalty when events do not go according to plan. We pinpoint some useful tips for your clients who may be considering taking on a governance role in a company for which they do not necessarily have all of the prerequisite skills or experience. The judgment for FXHT was released on 9 April 2009. This case concerns a foreign exchange investment broker. The elements of the case involved fraud, breaches of directors' duties and…
This month we conclude our discussion of the rights of unsecured creditors in various insolvency proceedings, by looking at the position in a liquidation. IntroductionA liquidator is normally appointed either by the shareholders or the High Court. The shareholders choose their own liquidator. The High Court appoints a liquidator chosen by the applicant creditor. More unusually, a liquidator can also be appointed by creditors at the 'watershed meeting' in a voluntary administration - seePart 1of this article. A liquidator has a duty to take possession of, protect, realise, and distribute the proceeds of realisation of the company's assets to its creditors. He or she looks after the interests of all creditors. The plight of the unsecured creditorUnsecured creditors do not…
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