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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, April is a quieter month for company insolvencies than March is and April 2021 followed this pattern. April starts the new financial year for most companies and, hopefully, allows businesses to put the COVID-disrupted 2021 financial year behind them. We anticipate that the statistics for the 2021 financial year will become the outlier and that the 2020 financial year will be a better measure of insolvency trends. Let’s look at what happened in April 2021. The minimum wage increased $1.10 per hour from 1 April 2021 to $20.00 per hour ($41,600.00 per annum). While the additional cost of $44.00 per employee per week ($2,288.00 per annum) may not have a huge impact on some smaller businesses with very few…
IRD pressure on the Construction Industry It is important to keep proper books and records and ensure you meet your tax obligations. IRD say “declare it all or risk everything” in a recent announcement. Late payments and bad debts are the main triggers of insolvency in construction companies. The payment of taxes however contributes to cash flow problems. IRD’s recent release is heavily focussed on enforcement. Winding up applications by the Revenue are also on the rise generally. For more information on the Revenue’s latest release relating to “cashies” read here. Dealing with IRD We recommend communicating early and negotiating a time payment arrangement if your company falls into arrears but generally your business is viable. The IRD will likely…
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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Welcome to the month of double lockdowns and Americas Cup racing. February is typically the first month of the year where we see a steep uptake in all insolvency appointments across the board after the lower months of December and January. Directors will take a hard look at their company after a quiet Christmas period and January break and make the call on whether they want to continue through another year or pack it in. Individuals will often go through a similar process after having spent up large over the Christmas period and having little to show for it and no prospects of paying off the debts they may have racked up and will need to assess their insolvency options.…
Murphy’s Law (or one version of it) states "whatever can go wrong, will go wrong" and that can appear to be the case when you are running a business in the current environment. If it’s not a lockdown, it’s a shortage of supply, or it’s a major client failing, or it’s another of the myriad of things that can go wrong. While having good contingency plans in place, including cash reserves or access to a fighting fund, can help your business get through the hard times, when these problems come at you one after another in quick succession, things can turn to custard very quickly. When that happens, there are things that, as a director of the company, you should…
Welcome to the 2021 statistics. January is traditionally a quiet month for appointments across all forms of insolvency and 2021 is no exception. With the courts closed for most of January, many companies extending their Christmas close down periods well into January, and the bulk of the country holidaying at the bach or camping in the great outdoors with the children, not a lot happened on the insolvency front. Typically, appointments begin to track up from February onwards. Many of the woes from 2020 – changes in consumer demand, shipping delays, the loss of overseas tourists, domestic tourism visiting different destinations and spending less than their overseas counterparts, lower than expected income over the summer trading period, minimum wage increases,…
With one month now under our belts into 2021 it is timely to have a look back on 2020 and how the year played out when lined up to past years so we can gauge the full affect of COVID-19. January 2021 figures will be published in a separate article when they are compiled over the next few days. I’m not sure that we need to do a full recap of the major events of 2020, the notable ones were COVID-19 lockdown #1, COVID-19 lockdown #2 for Auckland then an election. In any normal year with two economic lockdowns for an extended period you would expect there to be an upswing in the insolvency cases for an economy. This was…
With the NZ election behind us and certainty of which party will maintain the lead in government, we move into a busy Christmas period. The wage subsidy is beginning to fall off. From September we are starting to see businesses having to stand on their own two feet once again. From an industry standpoint of the economy what are we expecting to see for businesses over this time and into 2021? As we all know the NZ government has injected massive amounts of cash into the NZ economy in a reasonable short time frame propping up a number of industries and supporting our job market. Because of this, unemployment figures continue to stay subdued with September quarter figures set at…
We know that deciding to let your business close can be hard, whatever the reason. If there are still creditors to pay, it can also be stressful, especially if all of the company’s assets have already been sold. There’s a lot to be done after the company’s doors have shut and its assets have been sold. If you don’t want to be dealing with these issues on a piecemeal basis, we recommend that the company be put into liquidation. We recognise that 2020 and 2021 have been especially difficult for a lot of business owners. That’s why we decided in 2020 to offer shareholders our services to liquidate their non-trading, no asset companies for a one-off contribution of $3,000 plus…