Business recovery

The country is in the process of working its way back from the economic standstill that most industries experienced as a result of the Level 4 lockdown. For those that traded at Level 3 and Level 2, they had to shift their business models to meet the COVID-19 trading requirements. Many of those requirements squeezed margins. In the coming months, many business owners will need to look at their businesses and decide whether to continue to trade going forward. While the Government has provided some support, recovering from lockdown is just one more hurdle for businesses that have been experiencing year on year increases in operating expenses and the minimum wage, both of which have made tight margins even tighter.…
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…
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…
Even in New Zealand’s currently comparatively benign economic conditions, some businesses inevitably find themselves struggling to survive. If you want your business to survive and then flourish, you need to put a business recovery plan in place. Managing a struggling business is stressful and demanding on directors, management and staff alike. The thought of impending failure is emotionally taxing on all stakeholders. Gambling on the business’ success with money from your family or friends, or extending credit with suppliers just to get by is often a poor strategy. Hope is never a reliable method.Moreover, the ethical challenges involved in risking other peoples’ money is a major stressor for most people.   Why Businesses Find Themselves Struggling Businesses can often struggle…
As it is in all areas of business, when you are seeking advice or input on insolvency matters it is important to go to the right source. There are lawyers and accountants that specialise in insolvency but, depending of the circumstances, and what you are looking to achieve, who you choose is important. Under the current legislation, the Companies Act 1993, anyone, without conflict of interest, and with a few other exceptions, can take an appointment as an Insolvency Practitioner and be appointed as liquidator or receiver of a company. They do not have to have any formal qualification and do not have to be registered or subject to any particular code of conduct. This situation is likely to change…
How is a Receiver Appointed A Receiver is appointed under a general security agreement (GSA) or a deed, or by the High Court. A Court appointed Receivership is less common. Receivers are most commonly appointed over all present and after acquired personal property and undertakings of the company but can also (subject to the security agreement) be appointed over specific assets. A Receiver is most often appointed for financial reasons however Receivers can also be appointed as a result of shareholder dysfunction risking the welfare of the business or perhaps for the reason of fraud. A Receivership is a mechanism for secured creditors to recover moneys due to them when the debtor fails to pay. There must be a default…
Businesses get into difficulty for a range of reasons. When directors have acted in good faith and react to the situation early enough, and where there is a good prospect of recovery, a compromise may be acceptable to the company’s creditors. The purpose of a compromise proposal is to increase the likelihood of some classes of creditors receiving more than they would if the company were put into liquidation. Often, voting outcomes rely on the creditors’ opinion of the director(s) but issues can arise when related parties, who may be seen as voting to protect their own interests, are involved. Statutory Requirements The statutory requirements of a compromise are set out under Part 14 of the Companies Act 1993 (“the…
SMEs make up a large part of the insolvency work that we at McDonald Vague handle and the reasons for those insolvencies range from events beyond the control of the company directors to a complete lack of knowledge and understanding as to what is required of them.   In this article we will look at some of the causes, symptoms and actions that can be taken to recover companies facing financial difficulties.   Causes of company failure The causes of company failures, as reported to us by directors, are many and varied and the real reason is not always identified correctly by the directors. There are, however, common themes that come through which include:   1. Having all their eggs…
There have been a number of articles in the media lately that have called into question the integrity and honesty of some insolvency practitioners ("IPs"). In one widely reported example, an IP took $80,900 belonging to a liquidated company and deposited it into his own bank account, which he subsequently used for personal and business expenses. Then there are those IPs who have prior convictions for serious fraud or have been disqualified from professional bodies such as the NZ Institute of Chartered Accountants ("NZICA"). For some time now, many stakeholders have been calling for increased regulation of the insolvency profession to ensure that the interests of creditors are given the highest priority. Misconduct by a small number of IPs only…