faqs (18)
The directors have started up in business again doing exactly the same thing. Can they do this?
byThere is nothing preventing the directors from forming a new business. However, if the new company has the same or a similar name, or trading name, as that of the liquidated company, the directors can be held personally liable for the debts of the new company, unless they obtain the leave of the court. They can also face a substantial fine or even imprisonment. These are known as the 'phoenix company' provisions.
The main exception is where the new company buys the old company's assets from its receiver or liquidator. In this situation the directors must write to all creditors of the old company advising them of the new company's formation.
Also, where directors are consistently involved with failed companies, they can be barred from acting as directors in future, on application to the Ministry of Business, Innovation and Employment or the Court.
The liquidator's job is to obtain the best price for the assets. If a director wants to buy assets, the liquidator has these items independently valued. As long as the sale is at the same price or higher than would be achieved on the open market, there is usually no reason why it should not take place. Such sales often in fact realise more for creditors, as there are no auction or other selling fees involved.
See also below regarding the 'Phoenix company' rules where directors buy the whole business back.
The Companies Act definition of director includes 'a person in accordance with whose directions or instructions the board of the company may be required or is accustomed to act'. This is what is commonly known as a 'shadow' or 'defacto' director. The definition goes on to state that this does not apply to a person to the extent that they act only in a professional capacity.
It is therefore essential that professional advisors provide advice only, and do not cross a line whereby they are instructing or directing a company's directors. If a professional advisor becomes involved in making management decisions, they run the risk of being held liable along with the named directors in the event of insolvency. If you have any concerns in this area we recommend taking legal advice.
Please see our article Establishing Insolvency on this subject.
Sooner rather than later is our strong recommendation. We regularly meet directors who have continued trading a business for long periods when it was clearly insolvent and had passed the point of no-return. Sadly, in many such cases the directors or their family members have sunk further money into the company, at a time when there was no realistic chance of repayment.
Delay also places directors at risk of action against them personally, especially where PAYE has been deducted but not paid over. The IRD is becoming much more aggressive in pursuing directors personally for non-payment of PAYE. Various examples of recent IRD prosecutions are located on the IRD website.
A company owes me/my client money and I want to get it placed into liquidation
byPlease see our For unpaid creditors page.
I don't understand about registering on the Personal Property Securities Register if I have a retention of title clause or lease agreement?
byPlease refer to our article regarding the Personal Property Securities Act. You should also take advice from a commercial lawyer with expertise in this area. We can provide details of legal contacts in this field on request, at no cost.
Can I do anything else to recover what I am owed apart from just submitting a claim form?
byIf you have credit insurance, you should check with your insurer whether you are covered for all or part of your loss. If you are on the Invoice basis for GST accounting, you may be able to make a bad debt adjustment in your GST return. Check with your accountant on this. You may also need to make a bad debt adjustment in your income tax return if this has not already been included. Again, check with your accountant.
We recommend always taking the time to submit a claim form, as it is often unclear at the start of a case whether a dividend will be paid. Our six monthly reports are only sent to creditors who submit claims, so you may not be aware of developments giving rise to a payout to creditors. We are only permitted to pay dividends to creditors who file formal claims. Please also notify us of any change in address, as dividend payments are made by cheque rather than direct credit.
It varies from case to case. A simple liquidation will often be completed in six months. Those involving more complex matters can take a year, or sometimes several years. The factors that tend to delay completion of a liquidation are long drawn-out legal matters or sale of high value assets.
Why does the Inland Revenue Department ("IRD") always get preference?
byThe IRD ranks as preferential for PAYE and GST, on the basis that these funds are held by the company in trust for the IRD. Only the core debt is preferential, not any related interest or penalties. Income tax is also not preferential.
The IRD's preferential claim ranks behind employee claims for wages, holiday pay and redundancy pay. These preferential claims are capped at $20,340 per employee.