Liquidation

Businesses in New Zealand are facing challenging times. Directors of companies are pulled in all directions - employees to care for, bills to pay and creditors chasing them for payments. Directors are not alone in feeling the extreme levels of stress, fear and anxiety. Directors however should not now be prolonging the inevitable where they had no viable business pre Covid-19 and if post Covid-19 there is no reasonable prospect of the company recovering from the current circumstances. If circumstances are dire, the shareholders should be looking to appoint a liquidator to avoid debt increasing and further harming creditors. Liquidation does not necessarily mean the end of trading altogether. Often the business is sold and sometimes there is an opportunity…
The regulation of insolvency practitioners has been welcomed by most, if not all, reputable insolvency practitioners and most of the matters covered in the Insolvency Practitioners Regulation Act 2019 relate directly to the practitioners. The Insolvency Practitioners Regulation (Amendments) Act 2019 made amendments to various related legislation, including the Companies Act 1993 (“the Act”). In this article we look at one particular amendment to the Act, which came into force on 1 September 2020 and has a direct impact on the ability of company shareholders to appoint a liquidator in specific circumstances. Old Position: Generally speaking, there are two sets of circumstances in which the shareholders appoint liquidators of an insolvent company – • The company is insolvent, and the…
We all know it’s frustrating not being paid. What’s worse is that not getting paid affects your cash flow and chasing bad debts takes time that could otherwise be spent doing productive work. If you decide that your best option for resolving the debt is to liquidate the debtor company, the process generally takes at least three months. There are a number of milestones along the way, which are outlined below. Provided the debt is not disputed, the first step is to issue a statutory demand. The purpose of the statutory demand is to test the company’s solvency – the presumption being that, if the company is solvent and the debt is not in dispute, the company will pay the…
It is an unfortunate truth that, generally speaking, business owners only approach an Insolvency Practitioner about the financial plight of their company when the problem is terminal, and the only viable option is liquidation. The approach often happens when the pressure on the directors of the company gets unbearable and it starts to effect their health. With a large number of New Zealand companies having directors and shareholders who have personally guaranteed the company’s debts to financial institutions and suppliers, the pressure that comes with running a struggling company is intensified by the fact their personal assets could also be at risk. It isn’t unusual, when first meeting with directors and shareholders in this position, for them to tell us…
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 officers to a complete lack of knowledge and understanding by the company officers of what is required of them. • What led to those companies failing?• What were some of the red flags that might have been seen along the way? CAUSES OF FAILURE: The causes of company failures, as reported to us by the 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 in the reasons for company failures. All the Eggs…
Employees’ Employment on Liquidation When a company goes into liquidation, all of the company’s employment agreements may be terminated. If the company has employees when it is put into liquidation, the liquidators will usually visit the business and inform the employees of the liquidation. And, employees who have outstanding entitlements will be notified of the liquidation in writing, which is normally sent to the employee’s last known email or postal address. If the liquidators continue to trade the business or they require the expertise of certain employees after the company’s liquidation, the company in liquidation will re-employ the employees they require for the period they are required, which could be anywhere from a few days to months. Employees who work…
Liquidation Timeframe There is no prescribed timeframe under the Companies Act 1993 dictating the duration of a liquidation of a company. It is largely dependent on how quickly the assets of the company can be realised and distributed. Where litigation is involved the liquidation can span years.  Liquidators however has a duty under the code of conduct to attend to their duties in a timely way. A company with no assets takes about 3 to 6 months depending on how quickly the liquidator completes his/her investigation into the affairs of the company. The length of time is subject to the complexity of the work. A simple liquidation could span the notice period (4 weeks) and the objection period (4 weeks) plus…
The winding up of a company in New Zealand can occur in three ways – • A voluntary liquidation initiated by the shareholders of the company (solvent or insolvent companies); or• A Court ordered winding up initiated by a creditor of the company; or• A short form removal also known as Section 318(1)(d) process (solvent companies) The purpose of this article is to set out the different processes involved with these options. Voluntary Winding Up: The process to be followed by the directors and shareholders of a company to wind the company up depends on the financial position of the company, that is whether it is solvent or insolvent. Solvent Companies: When the decision has been made that a solvent…
As the creditor of a company that is failing to make payment of amounts owed, the process you have to follow, to have liquidators appointed in relation to that debtor company, can be slow and frustrating. It will be even more frustrating, and worrying, if you have concerns about what will happen with the assets of the debtor company while the process takes place? There is an option, pursuant to Sections 241(4)(d) and 246 of the Companies Act 1993 (“the Act”) to have an interim liquidator appointed by the Court to take control of and preserve those at-risk assets. NORMAL PROCESS In the normal course of events, when liquidating a debtor company, the process starts with the serving of a…
We are often asked ‘how do liquidators’ work’ and what are their rights regarding access to company records and information. To clarify we have put together this article. 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 affairs of the company to enable a full review to be undertaken. The purpose of the review is to – Establish the financial position of the company at liquidation; Ensure that all assets have been properly accounted for; Identify any other avenues of recovery for…
A recent case in the Hamilton High Court looked at the requirements on a liquidator to accept the claims of creditors and to call a meeting of creditors to decide if a replacement liquidator should be appointed. The Law on Calling a Meeting with Creditors Where a liquidator is appointed by shareholder resolution they are required to call a meeting of creditors within 10 working days of their appointment pursuant to section 243 (1)(a) of the Companies Act 1993 (“the Act). This requirement can be dispensed with, pursuant to section 245 of the Act, if the liquidator considers, having regard to the assets and liabilities of the company, the likely result of the liquidation and any other relevant matters, that…
Global Textiles Limited (In Liquidation) We were appointed liquidators of Global Textiles Limited (“Global Textiles”) on 13 March 2015 and are now in the final stages of the liquidation. Prior to our appointment, Global Textiles had been in business for nearly 20 years.  It supplied textiles to a number of brands in New Zealand and Australia from Jean Jones to small businesses.  It was also the designer and wholesaler of a popular clothing brand. With the emergence of globalisation and technology allowing easy access to markets outside of New Zealand, the local textiles industry has moved into the sunset phase of its life cycle. With cheaper imports from overseas coming into the market, Global Textiles’ traditional customers were increasingly demanding…
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