Liquidation
In normal circumstances there is no need for a party to go to Court to seek the liquidation of an apparently solvent company – but it is not “normal circumstances” when the relationship of the shareholders and directors of a company has broken down to the point that they cannot all agree on anything. This puts the individuals involved under a lot of stress and puts the viability of the company at risk. Section 246 of the Companies Act 1993 provides for an interim liquidator to be appointed by the Court, if it is satisfied, on an application being made, that it is necessary and expedient for the purposes of maintaining the value of assets owned or managed by the…
Liquidations advanced through the High Court require Court fee approval in most cases. Shareholder appointments also subject to some form of review and oversight. In some liquidations a committee is appointed. Every insolvency practitioner now needs to be licensed and is subject to a complaints and disciplinary process. A reasonable and competent liquidator should take into account the amount owed to creditors, the prospects of recovery and consider the cost versus benefit of advancing claims and legal actions. It is a liquidator's obligation to maximise the return to creditors and to act in a reasonable and efficient manner. There have been a number of cases now where liquidators have been scrutinised for charging excessive fees. Liquidators facing criticism It was…
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Video Link Here There is a belief held by some people that the liquidators of a company are paid by the person (or company) that appoints them and, in some cases, that is what happens – but not always. How the liquidators get paid, and by whom, will depend largely on the situation of the company being liquidated, such as solvent or insolvent, shareholder or High Court appointment, but there are two broad categories – • Payment from the assets of the company; or• Payment from a third party – such as shareholders of the company to be liquidated or the applicant creditor for the High Court proceedings to liquidate the company. The other possibility is that the liquidators will…
The Income tax Act 2007 allows a company to make a tax free distribution of capital gains “on liquidation”. The IRD issued publication QB20/03 on 11 December 2020. The publication discusses the first step legally necessary to achieve “liquidation” in both the short form (s318(1)(d) Companies Act 1993) and long-form liquidation (s241(2)(a) Companies Act 1993). IRD have confirmed when “liquidation” occurs under each process. It reinforces BR Pub 14/09 that a short form liquidation commences (for tax purposes) when a valid resolution is passed, when the directors (and/or shareholders depending on the constitution) make the decision to wind up the business, pay all creditors, distribute surplus assets and request removal from the register of companies, and then carry out the…
Typically, March is a busy month – it is the end of the financial year for most New Zealand companies and income tax returns for the previous financial year (for clients of tax agents) are due, which means many business owners decide to commit or quit in March. As a result of an alert level increase on 28 February 2021, Auckland spent the first week of March 2021 at Alert Level 3, while the rest of the country stepped up to Alert Level 2. In order to soften the blow, the Government activated two rounds of resurgence support payments plus a two-week wage subsidy payment for eligible businesses. There were also signals from the Government in around mid-March that the…
Voluntary liquidation allows a company to terminate its operations and sell off assets and for any shortfall to be dealt with. Some companies are liquidated because they serve no further purpose. Some are liquidated as they have unfeasible operations or poor operating conditions or technology has moved on. Others are liquidated because the founder has retired or passed and the business cannot operate without that expertise. Some have been affected by the failure of a large customer, the loss of a major contract or an extraordinary event, like Covid-19. Most companies advance an insolvent liquidation because: • The business cannot pay its debts as and when they fall due.• Liabilities exceed total assets.• The business is making losses and there…
Generally speaking, in the liquidation of a company, creditors of equal ranking in the liquidation are treated equally. So, if there are funds to distribute, they will all receive the same proportion of the amount that they have claimed. This is known as the Pari Passu Rule. The exception to this rule is when there is a mutual set-off between the company in liquidation and another party that is both a creditor to whom the company owes money, and a debtor that owes the company money. The requirement for the mutual set-off is set out in section 310 of the Companies Act 1993 as follows - 310 Mutual credit and set-off (1) Where there have been mutual credits, mutual debts,…
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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…
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…