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…

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…

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…

It is probably stating the obvious – but if you don’t ask your customers for payment for the goods or services you provide, there is a good chance they won’t pay you. A lack of cashflow causes issues for any business and particularly so for small businesses that operate on modest turnover and small margins of profit. It leads to the slow payment of creditors and can, if left unchecked, lead to the winding up of the business. The problem usually comes about, primarily in small businesses, when the owner is working in the business providing the goods and services etc during the week and the paperwork is done later if there is time. I am aware of one occasion…

Companies cease trading for many reasons including technological change, competition, ill health, directors’ retirement, ongoing financial problems, or simply because the company has sold its business or assets and serves no further purpose. When a business is profitable, a business can cease to trade following sale of its business or sale of its business assets and can resolve to wind up via a section 318(1)(d) procedure (known as the “short form removal”) or follow a formal solvent liquidation. In current New Zealand law, solvent liquidations are advanced to distribute capital gains and capital reserves tax free and to provide more certainty of finality. In insolvency, directors have a legal obligation to cease trading in accordance with insolvency laws and to…

Section 15 of the Companies Act 1993 states that a company is a separate legal entity, in its own right, separate from the shareholders, and continues in existence until it is removed from the New Zealand Register. Effectively that means it has the rights and obligations of person. It can own property, carry on a business, initiate legal action etc. It is also responsible for its actions and can be sued. The use of the company structure, with its separate identity, allows people to operate more than one business at the same time but keep the assets and liabilities of those separate businesses apart – so one business doesn’t drag the other down. CASE STUDY We were appointed as receivers…

So, yet another year is gone and a shiny fresh new year beckons. Will 2019 offer small business owners an opportunity to absorb the lessons from the best strategies and business results of 2018, and plan effectively for this year? Of course, business doesn't trade in isolation and small business trends are continually evolving. Whether the major small business trends are in customer service, marketing or technology, business owners need to understand the prevailing external factors in order to fine-tune their internal operations. Of course, some trends will have more of a direct impact on your business, than others regardless of your niche. However, the key is how you embrace and adapt them to your business’ needs and how successfully…

What is a General Security Agreement? A General Security Agreement (GSA) is a document recording a security provided by a debtor company to its creditor over a specific group of assets or over all assets of the business. The GSA records the terms which include a right of the creditor to register their interest on the Personal Property Securities Register (PPSR) so that there is a public record of that financial interest in the assets of the debtor company. We always recommend to directors/shareholders investing moneys into their business on start-up that they attend to completing the appropriate loan documentation (between company and individual) and a General Security Agreement recording the terms. It is important that this GSA is registered on…

Have greater flexibility and pay your income tax how and when it suits you Tax Management NZ (TMNZ) provides an IRD-approved service that gives businesses greater flexibility to do tax on their terms by letting them choose how and when they make their income tax payments. Upcoming provisional tax paymentsTMNZ has several payment options to help you manage upcoming income tax payments. This provides greater flexibility, wipes any late payment penalties, and reduces interest costs. The burden provisional tax payments can have on your cashflow can be eased by paying off what you owe in flexible instalments, where you pay what you can, when you can. If paying an upcoming provisional tax payment in instalments does not suit, you can…

The Solvency Test The Companies Act 1993 requires directors to focus on the financial state of the company and to consider whether the company meets the solvency test before permitting distributions and certain other actions by the company. The statutory Solvency Test is set out at section 4 of the Companies Act 1993.  The Solvency Test requires that both the liquidity limb and the balance sheet limb of the test are satisfied immediately after a distribution or other action.  Distributions are widely defined and include the direct or indirect transfer of money or property and incurring a debt for the benefit of shareholders. In making a distribution, directors who vote in favour of the distribution must sign a solvency certificate…