Statutory demands - minimising bad debts is critical for any business  Debt collection is difficult for business owners.  Pursuing bad debts early on improves any chance of receiving payment.  A creditor that puts the most pressure on a debtor will most likely receive their money before others; however, they need to be conscious of the voidable transaction regime when they are dealing with an insolvent company.  If you are owed a debt and that debt is not in dispute and you suspect the company you have been trading with may be insolvent, you can issue a statutory demand against the company.  Depending on your terms of trade, a statutory demand will require the debtor to pay you the outstanding debt,…

It is an unfortunate fact that many companies experience financial difficulties at times. Often the directors/shareholders do not realise that there are a number of options available to them. This article provides an overview of the various options for distressed companies. Creditors compromise A compromise is an agreement between a company and its creditors. The purpose is to enable a company to trade out of its financial difficulties and thus avoid administration, receivership or liquidation. In this way the company can survive into the future and provide continuing business to creditors. There are two basic features of most compromises: Creditors will be repaid in full or in part over a period. If creditors are paid in part they write off…

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 directors to a complete lack of knowledge and understanding as to what is required of them.   In this article we will look at some of the causes, symptoms and actions that can be taken to recover companies facing financial difficulties.   Causes of company failure The causes of company failures, as reported to us by 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 which include:   1. Having all their eggs…

The Insolvency Act 2006 was implemented on 3 September 2006, and created a new alternative to bankruptcy called the No Asset Procedure ("NAP").  This involves a one year term, rather than the usual three year term in bankruptcy.   The NAP is simply a once-off reprieve for the consumer type small-time debtor who has got out of their financial depth.  To qualify, the debtor must have no assets (except excluded assets - see below), total debts between $1,000 and $40,000, no means to repay any amount, and a clean financial record (not previously bankrupt and not previously admitted to the NAP).   Once admitted to the NAP, the debtor enjoys a moratorium on their debts; with some exceptions these cannot…

Our first article of the year reviews the significant issues and developments in insolvency from 2012 and looks at their impact on the industry into 2013 and beyond. Insolvency practitioner licensing has not yet been adopted  Legislation has been drafted however the approach and extent to a licensing regime seems to be difficult to agree and has generated much discussion within what is a relatively small industry. In late 2012 INSOL (the NZICA administered insolvency special interest group) proposed a voluntary registration regime, in an effort to provide all parties with more confidence when choosing and dealing with insolvency practitioners ("IPs"). IPs regularly hold significant funds for creditors, with minimal oversight.  The recent conviction of a liquidator for theft of…

Seventh Schedule DISCLAIMERThis article is intended to provide general information and should not be construed as legal advice.  Parties who require clarification on issues raised in this article should take their own legal advice.

A statutory demand is a claim under Section 289 of the Companies Act 1993. If you or a client receive a statutory demand you are required to pay the specified sum, enter into a compromise or give charge over property to secure payment of the debt to the reasonable satisfaction of the creditor within 15 working days of the date of service, or such longer period as the Court may order. Received a Statutory Demand? We can help If you have been served with a statutory demand you need to speak to us immediately. There is a 15 working day window before your options start to close. The earlier you contact us the more options you have. Contact us now…

The earthquakes in Canterbury created a disaster on a scale not previously seen in New Zealand during our lifetime. Christchurch will be rebuilt and when it gets into full swing it will be the biggest building project in New Zealand history. Treasury has forecast that the cost of the rebuild will be circa NZ$40 billion. Fortunes will be made out of the rebuild, but like any boom, history tells us there will be some spectacular failures along the way. In this article we will explore the issues facing construction companies waiting for the Christchurch rebuild, the chances of another large construction company collapse and some advice on how you as a professional advisor or construction industry contractor can help protect…

Our clients sometimes express frustration and disbelief when directors of insolvent companies form new companies, often trading as normal, especially when these new companies then also fail.  A frequent question is along the lines of "surely this can't be legal?". In this short article we seek to clarify the law in this complex area. It is important to understand that there is no general prohibition on directors starting out again, even with an essentially identical business.  Instead the law seeks simply to ensure that suppliers are not misled or confused as to which entity they are dealing with, and are aware of any insolvency, and also any related sale of assets to a new company.  It is then up to…

Record numbers of New Zealanders continue to leave permanently for Australia, almost 54,000 in 2012 alone. While most of those departing leave in search of higher incomes and warmer weather, some leave to escape their financial responsibilities, whether this is child support, a student loan or a liability under a personal guarantee. Correspondingly, often there are no assets left in New Zealand for the creditor to recover. So, is it really as simple as purchasing a plane ticket to Australia to walk away from debts? This common tactic has become such a concern for the Inland Revenue Department, who administers the student loan scheme, that new sanctions allowing the arrest of overseas based defaulters at the border were announced in…

According to the business.govt.nz website, about one in ten small businesses fail in their first year, and 70 percent capsize within the first five years. These are sobering statistics. Most directors that we meet blame the Global Financial Crisis ("GFC") as the number one reason their business failed. Although the GFC was probably one of the causes of the company's downfall it will not have been the main reason. The main reason a company fails is poor management. It is important for directors to be aware of the bumpy road ahead when starting up their company. Many people are very good at what they do technically, however, they lack the knowledge and know how of running a company.  In our…