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…

Businesses get into difficulty for a range of reasons. When directors have acted in good faith and react to the situation early enough, and where there is a good prospect of recovery, a compromise may be acceptable to the company’s creditors. The purpose of a compromise proposal is to increase the likelihood of some classes of creditors receiving more than they would if the company were put into liquidation. Often, voting outcomes rely on the creditors’ opinion of the director(s) but issues can arise when related parties, who may be seen as voting to protect their own interests, are involved. Statutory Requirements The statutory requirements of a compromise are set out under Part 14 of the Companies Act 1993 (“the…

If you're a typical small business owner, your business lending is likely secured against your family property (or your family trust’s property). If your business is going well and the market is booming, securing your business lending against your property gives you the benefit of a good interest rate and the increasing equity in your property can give you the opportunity to borrow more so you can smooth out any bumps in the road.  The question is: What happens if you hit a bump in the road and the property market is on its way down? Over the last few years, the property market has been on an upward cycle but, like all market cycles, at some point the market…

In the words of Fredrick Nael: “It takes both sides to build a bridge.” An Alternative to Bankruptcy – Part 5 Subpart 2 Proposals Insolvent individuals are often unaware that there are alternatives to bankruptcy and what the impact of those alternative options will be, so they are ill equipped to make informed decisions. This article focuses on Part 5 Subpart 2 Proposals. There are other bankruptcy alternatives such as Debt repayment orders (DRO) formally known as the summary instalment orders (SIO) and no asset procedures (for debts less than $50,000) as well as informal settlements, none of which are discussed here. Resolving personal insolvency issues using a Part 5 proposal requires the insolvent to put his/her best foot forward…

The Court of Appeal has upheld the decision of the High Court in Lewis Holdings Limited v Steel & Tube Holdings Limited, and held the parent company responsible to pay the debts of its subsidiary.   In this case the level of involvement of the parent compromised the independence of the subsidiary.  There was no clear distinction between parent and subsidiary.  The parent treated the subsidiary as an economic division of itself, akin to a "de facto amalgamation".  The cumulative factors supporting lack of independence led to this decision. The case relied on a rarely used section of the Companies Act 1993 ("the Act").  It highlights the importance of subsidiary companies maintaining independence from their parents.  Failure to do so may…

One of the first tasks facing liquidators after their appointment is to ascertain and communicate with those people and entities who can rightly register a claim in the liquidation as a creditor. Generally, this information will be provided by the directors of the company, along with copies of unpaid invoices or statements on the individual accounts, but not all eligible creditors are that easily identified. Section 303 of the Companies Act 1993 ("the Act") sets out the admissible claims in a liquidation - Claims admitted - Subject to subsection (2) of this section, a debt or liability, present or future, certain or contingent, whether it is an ascertained debt or a liability for damages, may be admitted as a claim…

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…

There is a lot of confusion amongst business owners on the best sale option – assets or shares. Getting it wrong can incur unexpected liabilities and loss. There are two types of business sales: An asset sale (plant, property, machinery, equipment, goodwill, etc) A share sale (being shares, either all or part). However, understanding the risks and benefits will help business owners make an informed decision.  The sale/purchase decision should consider debt structures, securities held and required, the level of transparency sought, risk profile of the parties, the tax impacts, how the business operates, who is required, and whether the business will attract investors. It also depends on consents being achieved, transferability or gaining of regulatory licenses, warranties, contingent liabilities,…

Dealing with non-payers can be like ‘pulling teeth’. Cash, however, is the lifeblood of business and most business owners cannot afford to sit back and not take action. We cover our top tips for taking control of your debtors... The good news is that you can take steps (with Court proceedings often a last resort) to improve your cash flow and disincentivise your clients from treating you like a bank. We all know court can be an expensive and time consuming process and can spell the end of a business relationship. A formal demand can also damage your relationship with your customer and, if you suspect insolvency, potentially place you in a difficult position with the liquidator seeking to ‘claw…

Due to both a lack of sufficient legislative regulation and in order to bring New Zealand Insolvency Practitioners further in line with Australia and other jurisdictions, the Restructuring Insolvency and Turnaround Association of New Zealand (RITANZ) working alongside Chartered Accountants Australia New Zealand (CAANZ) has developed a framework of self-regulation. Under the various acts Insolvency Practitioners are charged with administering, there are only negative licensing regimes in effect. These regimes only exclude individuals from acting as Insolvency Practitioners if they fail to meet a specific set of criteria. These include the Insolvency Practitioner being: over the age of 18; of sound mind; not currently an undischarged bankrupt; and having no continuing business relationship with the insolvent company.   This new framework requires…

Amongst the director duties imposed by the Companies Act 1993 ("the Act") directors must keep proper accounting records (section 194), and their remuneration must be properly authorised by the board and recorded in the company's interests register (section 161). Without proper accounting records directors' ability to perform their other duties can also be affected. If directors fail to perform their duties they may face fines, personal liability for company debts, or orders to compensate the companies concerned for losses caused. The case of Madsen-Ries and Vance v Petera [2015] NZHC 538 dealt with various breaches and remedies in respect of directors' duties, and the judgment is well worth further study for both directors and insolvency professionals. Madsen-Ries and Vance v…

With power comes responsibility, and the duties imposed on company directors are extensive and onerous. Whilst business is brisk and revenues swell, breaches of directors’ duties often go unnoticed and without serious repercussions. When fortunes change, a director’s conduct, even years before, can come under close scrutiny from various quarters. As matters go from bad to worse, these parties include shareholders, creditors, receivers, liquidators and regulatory enforcement. Section 126 of the Companies Act 1993 (“the Act”) widely defines directors; effectively including shadow and silent directors, as well as those who although not duly appointed, exercise certain powers of a director. Calling to account Under the Act, liquidators have extensive powers to investigate the affairs of failed companies and the conduct…