From time to time we are approached by persons or companies pursued by liquidators of other insolvency firms. We are also asked to provide guidance or opinions on how a liquidator should act, what is reasonable and how to respond to demands/requests. Insolvency specialists take different approaches and some Insolvency Practitioners ("IP") do not always act in the best interests of the company creditors. There have been several reported instances in recent years. At McDonald Vague our objective is to maximise the return for creditors. We do not always achieve a return for unsecured creditors but have a good reputation for taking a firm and fair approach and getting returns. Cost/benefit is always a consideration. This blog post discusses the…

Part 2 of 2   Following on from our earlier article dealing with how liens over company records are treated in a liquidation, we will now cover how liens are dealt with in receiverships and bankruptcies, and how to handle a lien held over the assets of the entity. Bankruptcy lien over records and documents Upon the adjudication of a bankrupt all of their property is vested in the Official Assignee under Section 101 of the Insolvency Act 2006.  For those records that are not in the possession of the Official Assignee a written request is made for their surrender under Section 171 of the Insolvency Act 2006.  This request encompasses any document that relates to the bankrupt's property, conduct,…

The solvency test is not required to be met each day a company trades.  It is required for certain transactions including distributions and dividends and requires the company to demonstrate it can meet two tests.  These tests are the trading solvency/liquidity test and the balance sheet solvency test.   To satisfy the solvency tests, a company must be able to pay its debts as they become due in the normal course of business; and the value of its assets must be greater than the value of its liabilities (including contingent liabilities). One objective of the solvency test is to control all transactions that transfer wealth from a company.  In a liquidation context, where transactions have occurred when the company did not…

Part 1 of 2  Having a customer go into liquidation is never appreciated.  There is a potential loss of profit, and as such, creditors generally seek to secure and protect their situation through whatever means necessary. In a perfect world, the creditor will be secured by way of a perfected security interest under the Personal Properties Security Act 1999 that leads to gaining a super priority to recovery of equipment or to unpaid stocks and potentially a recovery from proceeds relating to those unpaid stocks.  However, often there is no security and no assets on liquidation. On occasion, however, the creditor will find themselves in possession of company assets and records over which they have no registered security, and the…

On 15 September 2014, insolvency and business recovery specialists McDonald Vague advised 288 former employees and unsecured creditors totalling $13.112 million that a total dividend pay-out of 100 cents in the dollar had been made to most of them. Given that this was a large corporate failure with initial unsecured claims in excess of $25 million this is a significant pay-out. Early on in the liquidation it looked like creditors would face a nil dividend.  The steps taken to achieve this result include: Engaging in, and winning, a significant arbitration award relating to DML's mining operations at Waihi. Establishing the unsecured creditors' position by disputing and settling several significant unsecured claims for amounts primarily owed by other companies related to…

Many of our clients don't deal with insolvency on a daily basis, and therefore have only a fairly generalised idea of what we do. This article seeks to provide a better understanding of how the liquidation process works. It also demonstrates how choosing the right insolvency practitioner can result in funds being recovered for creditors that would otherwise not be available.   The liquidation process  Most people have a basic intuitive feel for a liquidator's role. This is usually that he or she closes down a business, dismisses staff, sells assets and collects debts. This may well be true, but generally such activities form only part of a much more involved process. Liquidators have very wide powers to investigate a…

The following are some issues which tend to crop up on many of our liquidations. Vehicles claimed by directors A minor, but often emotive issue, is the car "owned" by the director. The director states it is their car, and it is registered in their name. Registration, however, does not prove ownership and if the car is in the company's accounts and shown on the depreciation schedule, the liquidator will fulfill one of their principal duties by taking possession of the car and selling it. Share capital not paid up Under modern company law, shares have no nominal value. Too many times we hear that if a company has 1,000 shares then there is an obligation on the shareholders to…

McDonald Vague provides a specialist service conducting solvent liquidations. Companies are often put into liquidation this way when a business has been either sold, closed down or reorganised for tax and/or management purposes.   Capital gains on company sales Under current New Zealand law, companies that have sold their business at a capital profit can then, on liquidation, distribute that profit to their shareholders tax free (arm's length transactions only) under Section CD26 of the Income Tax Act 2007. There is often debate as to whether a formal liquidation process is necessary to distribute tax free capital profits, or whether it is sufficient to simply have the company struck off the Companies Register. When large sums of money are involved,…

Question: How can a liquidator be removed from office? Legislation: The legislation which applies is the Companies Act 1993. Introduction Apart from the normal procedures, the office of liquidator also becomes vacant if the person holding office dies or becomes disqualified under Section 280 of the Companies Act 1993. This is the section which deals with qualifications of liquidators. For example, the office would become vacant if the liquidator were to be made bankrupt or were to become subject to a compulsory treatment order under the Mental Health Act. In normal circumstances however, a liquidator is removed from office in one of the four ways: - 1.Removed by Resignation A person may resign from the office of liquidator by appointing…

Question: Liquidators have different views regarding proxies and representatives of company creditors at creditors meetings. What is the correct procedure? Legislation: The legislation which applies is: The Companies Act 1993, Section 314 The Fifth Schedule to the Companies Act 1993, Clause 6 and Clause 9 The Companies Act 1993 Liquidation Regulations 1994, Regulations 23 and 27. Answer: An examination of the legislation shows that a company may be represented at a meeting of creditors in two separate ways (refer the legislation for full details): - Formally by proxy (in writing): The company may appoint a proxy. The proxy may be any person including the liquidator or if there is no liquidator, the chairperson of a meeting. Where the person appointed…