Friday, 03 December 2021 19:37

Criticism by the Courts - Liquidator Fees

Liquidations advanced through the High Court require Court fee approval in most cases.

Shareholder appointments also subject to some form of review and oversight. In some liquidations a committee is appointed.

Every insolvency practitioner now needs to be licensed and is subject to a complaints and disciplinary process.

A reasonable and competent liquidator should take into account the amount owed to creditors, the prospects of recovery and consider the cost versus benefit of advancing claims and legal actions. It is a liquidator's obligation to maximise the return to creditors and to act in a reasonable and efficient manner.

There have been a number of cases now where liquidators have been scrutinised for charging excessive fees.

Liquidators facing criticism

It was recently published that creditors of a hydroponics company were entitled to be paid more than $56,000 from the reimbursement by the liquidators of fees taken after the High Court deemed the fees were "not reasonably incurred" and hard to justify.

In 2020, another Liquidator faced the Court reducing their fees by 25% in one case and 67% in another. The Judge said "If this liquidation had gone to smaller insolvency practice, I am satisfied the liquidation could have been completed in a shorter time."

The most recent case highlights that Liquidators seeking to discharge their duties should do so with costs and benefits clearly in mind; the benefits ordinarily being those to the creditors. The costs of litigation have to be reasonably incurred and proportionate.

The High Court has the ability to fix a global sum as remuneration if a liquidator has supplied too little information to enable a clear view to be formed on whether the amount claimed was reasonable.

The liquidator bears the onus of establishing that the claimed remuneration is “reasonable” and that the benefit of any doubt, based on the inadequacy of information provided by a liquidator, should be resolved in favour of the creditors.

Case Authority

The Court in Medforce found there must be enough information to enable an assessment of whether the total costs charged are reasonable.

As a minimum a statement of the work undertaken during the course of the liquidation, together with an expenditure account sufficiently itemised to enable the charges made to be related to the work done is required. The Court said “The detail would have to be sufficient to enable the judicial officer to determine whether the personnel involved in the liquidation and their respective charge-out rates were appropriate to the nature of the work undertaken. This information may in some cases raise concerns as to whether there has been overservicing and overcharging. If there are suggestions of this in the information provided, the Court can request further information. “

The leading case, Re Roslea Path Ltd (in liq), deals extensively with the principles and practice on applications to fix liquidators’ remuneration. The Court held that “in fixing a liquidator’s remuneration, it is determining the fairness and reasonableness of what has been charged when measured against the work undertaken and the result achieved. Fair and reasonable remuneration is the value of the services to the creditors and shareholders. Value is an elusive concept which goes beyond mathematical application of hourly rates to hours spent in administrating the company’s affairs.”

The New Zealand Courts support an Australian decision, Conlan v Adams that focussed on where time had not been used reasonably:

(a) work beyond the power of the liquidator;
(b) work done negligently;
(c) unnecessary work (covering decisions to carry out the work and over-servicing);
(d) work by people with inappropriate seniority; and
(e) work at inappropriate rates.


The recent judgment encourages liquidators to disclose relevant information as to remuneration to creditors during the liquidation.

If liquidators take a course of action which is not required in the liquidation, the court may disallow both their expenses and their remuneration for that course of action.

The legal basis is that regardless the court’s power of review of remuneration under ss 276 and 284, liquidators have no right to claim for expenses not required for a liquidation. Under Schedule 7(1) of the Companies Act, liquidators may be paid only “the fees and expenses properly incurred”.

At McDonald Vague our objective is to maximise the return for creditors. We do not always achieve a return for unsecured creditors but have a good reputation for taking a firm and fair approach and getting returns. Cost/benefit is always a consideration.


Relevant Articles:

How our firm works for you
Who pays the liquidator
Liquidators Duties and competence

Business Advice to Auckland based businesses

The Business Advice & Implementation Grants are now available for application.  Auckland businesses can apply for up to $3000 + GST through Business Advice support.  An Implementation Grant will pay for specific services to put your business advice or plan into action. 

If you’re looking for expert advice and support in areas such as Continuity, Financial Planning, Business Hibernation, Compromises or Exit, we can help get you there.  You can access advice if you are considering hibernating or closing your business, or are looking to restructure.

The advice should lead to a plan to overcome challenges and/or identify opportunities and map out the scope of the work required to achieve the plan. 

Implementation Grant

You can also register for help to put your business plan or advice into action – either an existing business plan or a plan based on the Business Advice received through Activate Tāmaki Makaurau.  The implementation grant is $4,000 + GST.

Eligibility to Access Business Advice and an Implementation grant

Your business needs to:
• be operating with 100 full time equivalent employees or less
• be GST registered in New Zealand
• have a New Zealand Business Number (NZBN)
• be operating in a commercial environment
• be a privately-owned business or are a Māori Trust or incorporation under the Te Ture Whenua Māori Act 1993 or similar organisation managing Māori assets under multiple ownership
• primarily operate within the Auckland Alert Level 3 boundary
• be an existing business that is trading prior to 22 October 2021

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Businesses need to register for Activate Tāmaki Makaurau support. McDonald Vague have registered with Activate Tāmaki Makaurau.

Business Advice, register here

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Our Service Offering

A review of the business, including a review of the company’s cashflow and financial management, and a restructuring/turnaround assessment to determine whether the business should:
- Continue to trade – implement financial and cashflow management, business continuity planning, consider new opportunities and customer identification, operational improvements, and business coaching
- Restructure the business – implement financial and cashflow management, scale down/streamline operations, customer identification, and debt restructuring
- Wind down and close the business – implement liquidation planning and support

First Steps - Contact us on This email address is being protected from spambots. You need JavaScript enabled to view it.  for further information and to assist with the application.

We’re here to help your business.

August 2021 has been a story of two halves. Between 1 and 17 August 2021, the outlook for economic growth was continuing to look positive. On 17 August 2021, the government called a press conference and, at 6:00 pm that evening, Jacinda Ardern told New Zealand that the country would be moving to alert Level 4 from 11:59 om that night. From 18 August 2021, most businesses were again forced to shut their premises as we returned to Level 4 lockdown and our home bubbles. Those of us that could, readjusted to working from home but Level 4 left many businesses unable to operate. The short notice also meant that many businesses – including those in hospitality, agriculture (who do not supply to the supermarkets), and floriculture – suffered huge losses of product as a result of the lockdown announcement.

Since the COVID-19 pandemic began, at least part of New Zealand has been in an Alert Level 3 or Level 4 lockdown for a total of 91 days to the end of August 2021. All of September and at least part of October will add to this total.


According to Statistics New Zealand, electronic card transactions in August 2021 was $6.433 billion, down $1.257 billion when compared to July 2021. Spending on consumables was up by $216 million but spending in all other categories were down:

The increase in the OCR that was being anticipated in the first half of August 2021 did not eventuate at the 18 August 2021 OCR announcement, a decision made off the back of the just re-introduced Level 4 lockdown. The Reserve Bank confirmed that the OCR is below the neutral interest rate, estimated to be around 2 percent, and said that its economic projections imply OCR increases are coming. The language used at the OCR review in August 2021 strongly suggested that the OCR could increase as early as 6 October 2021, when the OCR is next reviewed. We will know shortly whether the Level 4 and Level 3 lockdowns, especially in Auckland, have caused further delays to the anticipated OCR increases. Further increases to mortgage lending rates by the banks in September 2021 indicate that expect the answer to be no.

If you want to have a free chat about any issues your business is experiencing or about any other insolvency matter, contact us on 0800 30 30 34 or email This email address is being protected from spambots. You need JavaScript enabled to view it..

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

In August 2021, New Zealand spent 14 days in Alert Level 3 or higher. While the total number of corporate insolvency appointments in August was only down by 11.4 percent when compared to July 2021, the appointments over the lockdown period account for just 29.5 percent of the month’s total appointments.

There were four receiverships in August 2021, all of which started before the country went into Alert Level 4 lockdown. Four companies that entered voluntary administration earlier this year were put into liquidation at their watershed meetings this month. Of the two voluntary administrations in August 2021, one of the companies is now in liquidation and in receivership and the other has not yet reported on the outcome of its watershed meeting.


If the country had not gone into lockdown in the middle of August 2021, we expect that the appointment numbers would have been closer to the August 2019 (149) and August 2020 (154) appointments and the year to date appointments would have continued to approach the level of appointments in the year to date in 2019 and 2020.

 Notable insolvency appointments in August:
- Three of the Sacred Hill Vineyard entities have been placed into liquidation. These companies have been in receivership since May 2021.
- WNMC Limited (Wellington Night Market Cuba) is no longer trading and has been put into liquidation.
- Diners Club (NZ) Limited, who used to provide credit card services through The Warehouse, is going through a solvent liquidation.

Personal Insolvencies - Bankruptcy

The personal insolvency numbers have been fairly consistent since April 2021. The number of bankruptcies in August 2021 were lower than in July but the number of Debt Repayment Orders was higher.

As the cost of living continues to increase and businesses are put under more pressure, we expect that there will be more payment defaults and demands made on guarantors. Personal insolvencies are likely to increase as a result.


Winding Up Applications

The number of liquidation applications was the lowest year to date in August 2021, with only 41 advertisements appearing. By way of comparison, there were 75 advertisements in July 2021 and 83 advertisements in June 2021. The IRD advertised half as many applications in August 2021 as it did in July 2021.


We expect that the inability to serve documents at Alert Level 4 has affected the August advertising figures. The extension of Alert Level 4 into September and Alert Level 3 into October 2021, together with the IRD and many other businesses putting debt enforcement on hold while businesses are affected by lockdowns, will mean that advertising of winding up applications will be affected by the lockdowns for some time.

Many businesses are suffering from lower turnover because of lockdown why still incurring fixed overheads and operating expenses, which means many businesses have been operating at a loss for some time now. A number of Auckland retail businesses also lost out on potential sales when Auckland was in Alert Level 4 so could not operate but the rest of New Zealand was at Alert Level 2 and able to dispatch goods to Auckland customers.

While everyone understands that most businesses are doing it tough, the situation is precarious. For every business that closes its doors, employees will lose their jobs. While a company’s suppliers may be able to provide some breathing space in the short term in the hopes that the business’ cash flow will recover, that supplier will also have to deal with its own creditors. To date, we have not seen very many iconic businesses fail in New Zealand as a result of COVID-19.

When Mainzeal collapsed, there was a domino effect through the market, the effects of which are still at play. It remains to be seen whether, when (or if) the first large New Zealand business fails because of the COVID-19 pandemic, the house of cards will come tumbling down.


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July has mirrored the insolvency appointment figures over the last couple of months. The pressures affecting our economy have also remained fairly consistent over the last few months:
- Countries are continuing to fluctuate in and out of COVID-19 lockdowns
- Businesses and consumers are facing ongoing shipping delays and supply shortages
- Consumer demand for goods continues to exceed supply in many areas
- Labour shortages remain an issue
- Inflation remains higher than RBNZ’s targets and the affordability of goods remains an issue

To the end of July, the outlook for growth has continued to look positive:
- Unemployment rates have now fallen to pre-COVID-19 rates.
- The construction industry and the housing market continue to run hot
- Consumer spending remains strong
- The Reserve Bank has halted its Large Scale Asset Purchase programme

At the beginning of this week, most economists were predicting that the OCR would increase in the first time in 7 years. While the messaging continues to be that we should expect the OCR to increase before the end of the year, with a view to moving to an OCR of 2% by the end of 2023, subject to the impact of the latest COVID-19 lockdown. By the end of July, banks had already increased interest rates over the last couple of months, anticipating the August 2021 OCR increase that did not eventuate. We doubt that banks will decrease their mortgage rates before the next OCR update, given the indications that we should still be expecting the OCR to rise.

Data shows that 80% of residential borrowers currently have their mortgage interest rates locked in for 1 year or less, largely as a result of the historically low mortgage rates that have been on offer over the last few years. For new home owners with a 30 year mortgage, a 2% increase in mortgage rates will increase the monthly repayments on a $500,000 loan by around $550 per month. If wages do not increase in line with the cost of living, many could struggle to meet theses higher repayment obligations.

If you want to have a free chat about any issues your business is experiencing or about any other insolvency matter, contact us on 0800 30 30 34 or email This email address is being protected from spambots. You need JavaScript enabled to view it..

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

The number of company insolvency appointments in July 2021 were:
- Consistent with May and June this year, both by number and type of appointment
- Comparable to July 2020 but there were significantly more court appointments in 2021 (up around 68%)
- Down 20% compared to July 2019

The spike in solvent appointments is likely attributable to companies waiting for their financial statements to be prepared following the end of the 31 March 2021 financial year and other companies having a 30 June or 31 July balance date.

The number of liquidators being appointed by the Court on insolvent liquidations increased from 37% in June 2021 to 44% in July 2021. This trend is not surprising, given the number of liquidation applications that have been advertised in 2021.

Notable insolvency appointments in July:
- Receivers have been appointed over West Coast Brewery (New World Investment New Zealand (in receivership)). The business was listed for sale after one of its key people, a non-resident, could not get into New Zealand due to COVID-19 boarder restrictions. When the receivers were appointed, the business had not yet been sold.
- Many of the companies that were subject to insolvency processes this month operated in the following industries:
o Construction
o Dairy
o Forestry
o Hospitality

Personal Insolvencies - Bankruptcy

The number of personal insolvencies has been fairy consistent month on month since April 2021. Bankruptcies were around 24% higher in July 2021 than in in the previous few months, which correlates to fewer no asset procedures and debt repayment orders in July. This shift might indicate that the there has been more payment default on bigger debts.

As the cost of living continues to increase and more companies fail, we expect that there will be more payment defaults and demands made on guarantors. Personal insolvencies are likely to increase as a result.


Winding Up Applications

The IRD’s enforcement activity has continued but the numbers have eased off slightly since June 2021. It was the petitioning creditor in 66% July’s liquidation application and continues to lead the way by advertising 67% of all creditor applications in the year to date.


In the year to July 2021, 418 winding up proceedings have been advertised and 255 of the named debtors (61%) have ended up in liquidation. The IRD has advertised 161 (63%) court applications. The table below shows the number of companies that have gone into liquidation after their liquidation applications were advertised and how many of those were advertised by the IRD.


This article was prepared for RITANZ by James McMillan, Patrick Glennie and Nicole Thompson of Dentons Kensington Swan

2020 was a year of reform in the insolvency sector. Most of the provisions of the Insolvency Practitioners Regulation Act 2019 (IPRA) came into force on 1 September 2020, with several other significant reforms coming in at or around the same time. In this article, we look back at some of the key issues insolvency practitioners were readying themselves to grapple with, and trace developments since the IPRA came into force.

Key reforms

Some of the key reforms in 2020 were:

• Unlicensed insolvency practitioners can no longer accept new insolvency assignments (and have until 31 August 2021 to complete existing assignments).
• Court consent is no longer required for the appointment of liquidators who had previously been engaged to investigate or advise on the solvency of the company or monitor its affairs.
• The restriction on companies voluntarily appointing liquidators when enforcement steps have already been taken by third parties has been varied.
• The votes of related creditors are no longer counted without a court order.
• Insolvency practitioners now have a duty to report “serious problems”, including any offence, negligence, or material breach of a director’s duties, or where the management of the company has materially contributed to it being unable to pay its debts.
• The clawback window for voidable transactions for unrelated parties has reduced from two years to six months.
• There are now prescriptive restrictions on practitioners and certain other related parties prohibiting them from purchasing company assets except in limited circumstances.
• Liquidators now have to provide an interest statement with their first report to creditors and update it every six months, disclosing any actual or perceived conflict of interest.
• The requirements for reporting to creditors are now more detailed and prescriptive.
• There are now stricter rules for keeping company money separate from that of the practitioner’s firm.
• Practitioners now need to keep accounting records and other company documents for six years after a liquidation finishes.

Developments since the reforms

A number of the reforms reflect practices that most practitioners were already complying with, but there was a fear that the reforms would lead to a greater administrative burden. While the reforms have led to some additional costs (both up front costs incurred in updating standard form documents and ongoing costs in complying with the more detailed reporting requirements), there is a sense that the changes have led to increased transparency for creditors.
Turning to some of the reforms more specifically:
• Licensing – The transitional provisions mean that RITANZ and NZICA members can continue to accept appointments provided they applied for a licence by 31 December 2020. There is a deadline of 31 August 2021 for these applications to be determined. Anecdotally, it appears there are a number of practitioners with applications outstanding, so we wait to see whether that deadline can be met. Also in relation to licensing, the industry will be aware of the case of Grant v RITANZ [2020] NZHC 2876, in which Damien Grant of Waterstone Insolvency challenged RITANZ’s refusal to grant him membership (which would have meant he fulfilled the criteria to be licensed by NZICA) on the grounds that he was not a fit and proper person. RITANZ was ordered to reconsider Mr Grant’s application and has, after further independent investigation, accepted Mr Grant as a member.

• Court consent to appointment – One of the aspects of the reforms with almost universal support was the amendment to section 280 of the Companies Act to remove the requirement for court approval for the appointment of liquidators or administrators who had provided professional services to the company as investigating accountants, or who had a prior business relationship with a secured creditor of the company. This requirement led to unnecessary cost, delays and administration time. This procedural step has now been rendered unnecessary and the amended section 280 is better focused on issues that are more likely to affect a liquidation or administration. Since 1 September 2020, there have been no reported decisions under this section.

• Voluntary appointment of liquidators when enforcement steps already taken – Initial views were that the amendment to section 241 AA of the Companies Act narrowed the existing law so that, once a company had been served with winding up proceedings, shareholders could only appoint their own liquidator with the consent of the creditor. However, in Commissioner of Inland Revenue (CIR) v Pop-Up Globe Foundation Ltd [2021] NZHC 515, Associate Judge Bell confirmed that appointment of a liquidator by shareholders would be effective if done within 10 working days of service of winding up proceedings or, if done outside the 10 working days, with the consent of the petitioning creditor.

• Related creditor voting – The move to disregard related creditor voting at creditors’ meetings unless the court orders otherwise seems to have been a sensible move. It deals with the risk of related creditors voting to protect their own interests (for example, by voting to keep a ‘friendly liquidator’ in office). This change may also mean fewer challenges to decisions made at creditors’ meetings, which will avoid the uncertainty that comes with such challenges. So far there are no reported cases of related creditors applying to the court under section 245A of the Companies Act for an order that their vote be taken into account.

• Duty to report “serious problems” – Section 60 of the IPRA imposes a duty on insolvency practitioners to report “serious problems” to the relevant authorities, with the potential for a fine of up to $10,000 for breach of this duty. The definition of a “serious problem” is wide and judicial guidance may be required on the interpretation of s 60 in the future (for example, guidance on what constitutes a material breach of directors’ duties and whether all offences, including the likes of traffic offences, need to be reported). In the meantime, practitioners are left with the cost of the additional reporting requirements and a number of questions as to the scope of the duty, including: how much information will be required; to what extent the duty applies where a settlement has been reached in respect of an alleged breach; and, what responsibility practitioners have for follow up action in circumstances where there is no benefit to creditors. The Companies Office website has an online form for reporting serious problems.

• Voidable transaction change – The reduction in the clawback window for voidable transactions for unrelated parties to six months (from two years) has given comfort to creditors. In our experience, this change strikes members of the community as fair. The previous two year window was considered by many to be too harsh on unrelated parties, with the passage of time and expense of litigation making it difficult to contest liquidators’ claims.

• Extended duty to keep records – Insolvency practitioners are still getting to grips with the full ramifications of this change, and we suspect that there may be rising complaints as the costs become clearer – especially as other legislation already covers specific records where there is a particular need for retention. We expect that the increased costs will ultimately be borne by creditors as practitioners will allow for it as a cost of the liquidation.
The next year and beyond

While the last eight months have given us clarity on some of the new rules and processes, we suspect that the bedding in process will continue for some time.



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 short from liquidation process. It also confirms that the first step legally necessary to achieve a long form liquidation is not the same. A long form liquidation commences when the shareholders pass a resolution to appoint a named liquidator.

Can you lose liquidation status?

The commentary talks of the trigger for losing the “on liquidation” status under the short form method. Quite simply, if the company continues to trade after the winding up resolutions under the short form process or before the formal liquidation, there is a risk a capital distribution in that period is taxable. Also, if a company commences a short form process then there is a significant delay or does not complete the formal strike off, earlier capital distributions may be held taxable.

Directors need to be wary that when they decide to wind up their company and opt for the shortform method that they cannot be held to have traded in the winding up process and they cannot incur significant delay without reason. Refer IRD’s example 3 below. The short form liquidation process must lead to the company strike off.

Can you change process from short form to long form?

Example 1 below shows it can take time to achieve a winding up, even years.

Changing processes from short to long form is less clear. The article suggests “unforeseen processes” as a legitimate reason. It does not specify the common position where companies resolve to wind up their businesses, start to carry out that process and then appoint a liquidator to complete the process down the track. Liquidation for tax purposes starts on the winding up resolution and then the formal long form liquidation starts from the shareholder resolution appointing the liquidators by name later. It seems so long as there is a clear intention and reason to change process that this is acceptable.

These are the key clauses relating to the change of process, from my perspective are at 12 and 13 of QB20/03 :

12. Changing Processes “Sometimes, a company that has embarked on a short-form liquidation may find it necessary due to unforeseen circumstances to appoint a liquidator. This could occur, for example, where a dispute arises in the course of winding-up the business that would be better to have a third-party liquidator resolve. The Commissioner considers that the period known as “on liquidation” began when a valid resolution was passed commencing the short-form liquidation process.”

13. Time Delays “In some cases, there may be an extended period between the first step legally necessary to achieve liquidation and the removal of the company from the register. The period may even span different tax years, so that a distribution is made in a period preceding the removal of the company from the register. The Commissioner will assume that any distributions are made pursuant to a genuine intention to liquidate. However, if the liquidation is not completed or, in the case of a short-form liquidation, the company does not cease to trade after a resolution to cease to trade is passed, then such a distribution will not have occurred “on liquidation” and the distributions will be taxable.”

This suggests that a company may change processes so long as there is a genuine intention to liquidate from the outset and “on liquidation” occurs from the initial resolution (so long as further trading does not disrupt that).

The Examples provided

The key message is, so long as your client can clearly show there was no trading after the winding up resolution then there should be no issue with advancing a short form method. For certainty advancing a formal long form solvent liquidation is recommended – particularly for companies with large capital distributions. It removes the risk.

For advice on solvent or short form liquidations contact our team.


Related Article:  Ceasing to Trade a Company in New Zealand

Thursday, 29 April 2021 19:25

IRD focus on Construction Companies

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 require you to complete an IR591 (12 month cashflow forecast) to support any plan.  The IRD provide the following advice for managing tax and for gaining financial relief for companies, partnerships and trusts <read here>

If the financial position of the company is dire then contact a Licensed Insolvency Practitioner to discuss the options. The IRD may consider financial relief or an instalment plan.

There is a high risk of financial penalties for failing to take action. By making a full voluntary disclosure, IRD say you may have your penalties reduced by up to 100%, you may avoid prosecution and you may retain your good business reputation. By communicating early on, your business has more chance of survival. By taking action early as a director you are less likely to be breaching your duties under the Companies Act 1993 and to be held personally liable.