Frequently asked questions


The directors have started up in business again doing exactly the same thing. Can they do this?

There 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.

Is it legal for the directors to buy back company assets?

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.

Can I become a shadow director?

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.

What are the warning signs that my client is facing problems?

Please see our article Establishing Insolvency on this subject.

When should I be seeking insolvency advice for my client?

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

Please 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?

Please 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?

If 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.

How long does liquidation take?

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?

The 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.

Who gets paid first in a liquidation?

This is a slightly complicated area, but the broad outline is as follows.

After the costs of liquidation, secured creditors and preferential creditors are paid first, and then unsecured creditors.  Creditors with valid specific security over stock and equipment (such as retention of title clauses or leases) generally have priority to recover those items where they can be clearly identified.  The main categories of preferential claim are employees for wages, redundancy pay and holiday pay (up to a maximum of $22,160 per employee), and the IRD for GST and PAYE.

If there is say $50,000 remaining to pay to unsecured creditors and they are owed a total of $500,000, they will each receive a dividend of 10c in the $ on their debt.

How do you get paid?

In almost all cases our fees come solely from the realisation of assets.  Therefore, if we recover nothing then we are not paid for our time.

I am not receiving any information from the liquidators?

See above.  It may be that we do not have your correct details.  Please This email address is being protected from spambots. You need JavaScript enabled to view it. quoting the name of the insolvent company and your postal address.

How often do you report to creditors?

In a liquidation, we are obliged to report to creditors every six months. These reports are mailed to creditors, filed at the Companies Office and also placed in the reports section of our website.

What is the difference between a receiver and a liquidator?

A receiver is usually appointed by a bank or other creditor holding a General Security Agreement ("GSA") covering all the company's assets.  Although a receiver has a duty to preserve the rights of other creditors, his or her powers are limited.  Once the GSA holder is repaid, the receiver ceases to act.  If there are further assets to be realised or matters requiring investigation, a liquidator will also be appointed.

A liquidator's powers are much wider than those of a receiver.  Liquidators have investigatory powers, and powers to set aside voidable transactions and bring actions for offences under the Companies Act.

When should a company look at solvent liquidation?

Solvent liquidation enables the removal of companies from the register which are no longer required, whilst minimising the risks in relation to creditor claims which may later come to light.  It can also enable capital gains to be distributed tax-free to shareholders.  Please see our Solvent Liquidations article or contact Peri Finnigan.

How do I know if a company is in liquidation?

It's very easy - just go to and search on the company name in the box at the top right.  Details of any insolvencies, together with all reports to creditors, are listed on the 'Documents' tab.


How is a liquidator appointed?

A liquidator is usually appointed either by the shareholders, or by creditors through an application to the High Court.  For shareholders, the procedure is generally as simple as signing a resolution.  There are therefore normally no legal costs involved in a shareholder appointment.  In a court appointed liquidation, the costs of applying to the court are a preferential claim in the liquidation.

For more information on the process of placing a company into liquidation, see our Liquidations page.