In the life cycle of a company, disputes between shareholders or directors are not uncommon. Tensions may escalate due to differing visions, a breakdown in trust, or major life events—like the death of a key shareholder-director. When parties are no longer aligned and cannot find a viable path forward, liquidation is often seen as a last resort. But it can also be a strategic tool for resolving conflict and unlocking value in a deadlocked business.
When Business Relationships Break Down
Many small-to-medium enterprises (SMEs) in New Zealand are closely held, often by friends, family members, or long-time business partners. These relationships can deteriorate over time due to:
- Disagreements on strategy or financial direction
- Disparities in workload or contribution
- Retirement plans or exit timing
- Breakdown in communication or personal relationships
When the business becomes paralysed by disagreement—and particularly where the shareholders are also directors—the day-to-day running of the company can grind to a halt, harming profitability and increasing the risk of insolvency.
In such cases, liquidation may provide an orderly, impartial process for resolution.
Liquidation as a Structured Exit Mechanism
Solvent liquidation (commonly via a shareholders’ voluntary liquidation) can offer a pathway for resolution by:
- Allowing one party to exit while the other(s) acquire the business assets through an agreed buyout during the liquidation process
- Providing a fair and independent valuation of assets, reducing conflict over price and process
- Ensuring all creditors are paid before distributions to shareholders
- Facilitating a clean break, with all liabilities resolved and obligations finalised
An important strategic consideration is whether to resolve the dispute through a share transfer (where one party sells their shares in the existing company) or through the sale of assets into a new company structure.
Why a New Company Structure May Be Preferable:
- Clear separation from legacy liabilities, especially where trust between parties has broken down
- Allows the remaining party to start fresh, with updated governance, shareholding arrangements, and commercial direction
- The exiting party receives fair value through the liquidation process, rather than prolonged negotiations
- Removes risk of future disputes or issues arising from historical company actions
- This approach can be more straightforward and transparent than negotiating a share transfer—particularly when disputes are acrimonious or financial records are in dispute.
When a Major Shareholder-Director Dies
The death of a founding or major shareholder-director can throw a company into uncertainty, particularly where:
- The deceased held significant decision-making power
- There is no buy-sell agreement or succession plan in place
- The surviving shareholder(s) do not wish to continue with the Estate or family members
In this scenario, liquidation can offer an equitable path forward:
- The Estate receives its share of the net proceeds through the liquidation distribution
- The surviving shareholder may have the opportunity to purchase the business or assets, either personally or through a new company
- The business can be wound up in an orderly way, without the complications of dealing with uninterested or inexperienced heirs
- It also reduces emotional conflict and provides a professional, objective process.
When Should Shareholders Consider Liquidation?
Liquidation should not be seen as a failure, but rather as a tool to resolve impasses in a way that protects all parties. It may be appropriate when:
- There is a deadlock at board or shareholder level, and mediation has failed
- One party wants to exit, but no agreement can be reached on price or terms
- A key person has died and there is no desire or mechanism to continue
- The company is solvent but cannot continue effectively due to disputes
When Enough is Enough
It’s important for directors to act before disagreements put the company’s solvency at risk. Continuing to trade while impaired by conflict—or worse, while insolvent—can expose directors to personal liability.
An early conversation with an insolvency practitioner can help clarify:
- Whether the company is solvent
- The best exit mechanism
- Potential for asset sales, new structures, or business continuity
- Legal duties and risks under the Companies Act 1993, including s135 and s136 obligations
Final Word: Resolution Through Structure
While shareholder disputes and succession events can be emotionally and financially taxing, liquidation offers a structured, transparent, and legally compliant way to resolve matters. Whether the goal is to exit, buy out, wind up, or start fresh—liquidation can unlock the next chapter, especially when a clean break via a new company structure is the best path forward.
If your clients are facing a shareholder deadlock or difficult succession situation, early advice is critical. Contact Us for a confidential discussion on how liquidation can offer clarity and control in uncertain times.