Directors and Liquidators both have rights and duties following a formal liquidation appointment.  We address the rights and duties of directors in this article.

Rights of Directors following a Liquidation:

1. Right to Information: Directors have the right to access information and records about the liquidation process and the company's financial affairs. This includes access to the liquidator's reports, financial statements, and other relevant documents.

2. Right to Participate: Directors may participate in meetings of creditors and have the right to raise questions or concerns about the liquidation process.

3. Legal Advice: Directors have the right to seek legal advice and representation to protect their interests and understand their obligations during the liquidation process.

Duties of Directors to the Liquidator:

Directors have certain duties to cooperate with the liquidator during the company's liquidation. These duties are designed to ensure transparency, accuracy, and efficiency in the winding-up process:

1. Duty to Deliver Company Records: Directors are required to provide the liquidator with access to all company records, books, and documents. This duty aims to ensure that the liquidator has accurate information about the company's financial position and affairs.

2. Duty to Assist Liquidator: Directors are obligated to assist the liquidator in their investigations and inquiries. This duty includes providing information about the company's transactions, assets, liabilities, and financial history.

3. Duty to Attend Examinations: Directors may be required to attend public examinations if ordered by the court. Public examinations are sessions during which directors and officers of the company are questioned under oath about the company's affairs.

4. Duty to Disclose Information: Directors must disclose any property or assets that were transferred or disposed of with the intention of defrauding creditors within a certain period before the liquidation commenced.

5. Duty Not to Impede Liquidation: Directors are prohibited from taking actions that would hinder or obstruct the liquidation process, such as transferring assets out of the company or dissipating company funds.

6. Duty to Provide a Statement of Affairs: Directors may be required to provide a statement of affairs to the liquidator. This statement includes details about the company's assets, liabilities, creditors, and debtors.

It's important for directors to be aware of these duties and to cooperate fully with the liquidator to ensure compliance with the law. Failure to fulfill these duties can have legal consequences. Directors who have concerns or questions about their rights and responsibilities in a liquidation or who require advice on appointing liquidators contact our team. 
 

A liquidator in New Zealand is appointed to wind up the affairs of a company that is insolvent or otherwise unable to pay its debts.  Liquidators can also be appointed to solvent companies for formal closure.  The liquidator's role is to realize the company's assets, distribute them to creditors, and ultimately dissolve the company.

There are key rights and powers typically granted to liquidators in New Zealand:

1. Investigation Powers: Liquidators have the authority to investigate the company's affairs, transactions, and financial records to determine the company's financial position, assets, liabilities, and any potential wrongdoing.

2. Recovery and Collection: Liquidators can recover and collect assets that are part of the company's estate, including pursuing legal actions to recover funds owed to the company.

3. Disposition of Assets: Liquidators can sell or otherwise dispose of the company's assets in order to generate funds to pay creditors. This may involve selling assets through auctions, tenders, or private sales. This can include sale of a part of the business as a going concern.

4. Avoidance Transactions: Liquidators have the power to set aside certain transactions that occurred before the liquidation if they are deemed to be "voidable transactions," such as preferences or transactions at undervalue.

5. Summon Witnesses: Liquidators can summon witnesses and require them to give evidence and produce documents relevant to the liquidation process.

6. Public Examination: Liquidators can apply to the court to have certain individuals, including directors and officers of the company, publicly examined regarding the company's affairs.

7. Distribution of Funds: Liquidators have the responsibility to distribute the realized funds to creditors in accordance with the statutory priorities.

8. Reporting: Liquidators are required to provide regular reports to the creditors and to the Official Assignee, including financial statements, investigations, and progress reports.

The rights and powers of a liquidator can vary based on the specific circumstances of the company and the applicable laws and regulations. For a solvent company much of the powers are not called upon.  For an insolvent company, the circumstances will dictate what powers are used. For the most accurate and up-to-date information on the rights and powers of a liquidator in New Zealand, contact one of our team.

Navigating Financial Difficulty: Essential Steps for Companies in Crisis

Business is unpredictable. Even the most successful companies may find themselves facing financial difficulty at some point. Whether due to economic downturns, industry disruptions, or internal challenges, financial distress requires prompt and strategic action. In this article, we will explore the steps a company should take when encountering financial difficulty, encompassing a review of the big picture, operations, cost-cutting measures, tax management, and cash flow. Additionally, we will discuss the concept of company compromise (Part XIV of the Companies Act 1993) as a means to protect a viable business.

1. Review of the Big Picture: When a company encounters financial difficulty, it is essential to step back and take a comprehensive view of the situation. This involves assessing the underlying causes of the financial distress, identifying areas of concern, and understanding the company's strengths and weaknesses. Analyzing financial statements, profit margins, customer feedback, market trends, and competitive positioning can provide valuable insights. Such a review allows the company's leadership to gain a clear understanding of the challenges ahead and develop a strategic plan for recovery.

2. Review Operations and Procedures: Examining the company's operations and procedures is crucial to identifying inefficiencies and areas that need improvement. This includes evaluating production processes, supply chain management, inventory control, and customer service. Streamlining operations and implementing best practices can lead to cost savings and enhanced operational efficiency.

3. Cost Cutting Measures: In times of financial difficulty, prudent cost-cutting measures can help the company weather the storm. This involves identifying non-essential expenses, renegotiating contracts with suppliers, optimizing staffing levels, and reducing overhead costs. Careful consideration must be given to strike a balance between reducing costs and maintaining the company's ability to deliver its products or services effectively.

4. Managing Taxes: Managing taxes is a critical aspect of financial management. Companies should explore available tax instalment plans and ensure compliance with tax regulations. Engaging with tax professionals can provide valuable guidance on tax planning and optimizing the company's tax position.

5. Cash Flow Management: Cash flow is the lifeblood of any business, and effective cash flow management is imperative during financial difficulty. The company should closely monitor its cash inflows and outflows, accelerate collections from customers, negotiate extended payment terms with suppliers, and carefully manage inventory levels. Creating cash flow forecasts and contingency plans can help anticipate and mitigate potential cash flow crises.

The Company Compromise (Part XIV Companies Act 1993) is an option available for struggling companies who have viable businesses and simply need some time.  This offers an option for companies in financial difficulty to protect their viable business while repaying debts to creditors. The company compromise mechanism allows the company to propose a compromise arrangement to its creditors. The proposal outlines the company's intention to restructure its debts, alter its capital, or any other arrangement to facilitate its survival.

The company compromise mechanism involves the following steps:

a. Initiation of Compromise Proposal: The proponent presents the compromise to creditors. The proposal should include details of the company's financial position, the proposed arrangement, and how it will benefit the creditors and how it provides a better outcome than in liquidation. The proposal sets out the payment plan which may be a reduced settlement sum and the time period.

b. Approval by Creditors: The compromise proposal is presented to the company's creditors, who at a meeting (in person or by postal vote or proxy) must vote by class on whether to accept or reject it. For the proposal to succeed, it must receive approval from the majority in number and 75% in value of the creditors voting by each class.

c. Acting on the Compromise Terms:  Compromise managers managing the agreed compromise proposal and distribution to compromise creditors.

Financial difficulty is a challenging phase for any company, but proactive steps can pave the way for recovery and resurgence. A comprehensive review of the company's big picture, operations, and procedures is essential to identify the root causes of financial distress. Implementing cost-cutting measures, managing taxes, and optimizing cash flow contribute to financial stability. For companies facing severe financial strain, exploring the option of a company compromise under Part XIV of the Companies Act 1993 can provide a structured path to protect a viable business and foster a successful turnaround. Through strategic decision-making and adaptability, companies can emerge stronger from financial difficulty and continue their journey towards sustainable growth. For more information on company compromise refer here.

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

Company insolvency appointments for July 2023 combined across all insolvency types have come in just under 2019 levels. Court liquidations remain a driver for these increased levels. This increase is following continued strong winding up applications driven by the IRD and its recovery efforts.

As a percentage share of appointments, the figures have remained consistent from last month.

Total corporate insolvency figures for the year to date continued to sit just behind 2019 figures. The slower start to the years insolvency appointments has yet to be recovered from.

While court liquidations have dropped slightly as an overall percentage they still remain above their long team average so remain a large portion of the below pie, we continue to see a drop in solvent appointments however.

Winding Up Applications

The increases seen over the last 3 months have finally pulled back slightly. While it is a drop on the last two months it may be the result of increased figures evening out compared to the usual spike we see in July. So a longer sustained lift rather than a July spike and drop off.

From the below graph we continue to see that IRD’s winding up applications close in on 3x the remainder of all creditors and has continued to grow as an overall percentage month on month since March.

Personal Insolvencies – Bankruptcy, No Asset Procedure and Debt Repayment Orders.

Personal insolvency appointments remain low and continue looking very similar to 2022 figures. As a breakdown of appointment types bankruptcies remain above their long term average with both No Asset Procedures and Debt Repayment Orders below their averages by 10 pts each.

If you want to have a chat about any points raised or an issue you may have you can call on 0800 30 30 34 or email This email address is being protected from spambots. You need JavaScript enabled to view it..