In business, companies often experience fluctuations in performance and face various challenges. However, distinguishing between temporary setbacks and a persistent decline is crucial for business owners and stakeholders. Recognizing the early warning signs of a company in decline allows for timely intervention and strategic decision-making. In this article, we will explore key indicators to identify a company in decline, ranging from business performance and staff morale to reputation, market perception, financial distress, and cash flow crisis. Key indicators to identify a company in decline 1. Business Performance: One of the most evident signs of a company in decline is a consistent decline in business performance. This decline can manifest through decreasing sales revenue, declining profits, eroding market share, or diminishing…

Rescuing Struggling Companies in New Zealand: The Power of Creditors Compromise under Part XIV of the Companies Act 1993 Introduction In the challenging business landscape, many companies in New Zealand find themselves facing financial distress and struggling to meet their obligations. Fortunately, the Companies Act 1993 offers several mechanisms to facilitate the recovery of such companies. One option available to financially troubled companies is to consider a creditors compromise under Part XIV of the Act. This article aims to shed light on the benefits of a creditors compromise and highlight its differences from the voluntary administration process. Understanding the Creditors Compromise A creditors compromise is a process that enables a financially distressed company to reach an agreement with its creditors…

For many businesses in Auckland, it’s been a tough year. Navigating Level 4, Level 3, Level 3.1, Level 3.2, and Red have all had their own challenges and a move to Orange will have both rewards and challenges for businesses that have made it to this point. The $60 million Government support package for Auckland businesses that was announced on 22 October 2021 is now open. There is $50 million available to fund advice and planning support for businesses and the implementation of that advice. A further $10 million is available for mental health and wellbeing support. In order to access this support, you will need to be registered with Activate Tāmaki Makaurau. This link will take you to the…

Inland Revenue on Covid-19 Impact Video Link Here The IRD have advised that if taxpayers are adversely impacted by COVID-19, and they pay the outstanding core tax as soon as practicable that they will automatically write-off any penalties and interest. Taxpayers who are impacted by Covid-19 are suggested to apply for instalment arrangements. Customers who may already be in an arrangement but consider they may not be able to continue with the current terms due to being significantly affected by COVID-19 may ask to renegotiate an instalment arrangement. The key message is to get in contact with IRD. It is the Commissioner’s view that a customer has been significantly adversely affected by COVID-19 financially where the customer’s income or revenue…

The country is in the process of working its way back from the economic standstill that most industries experienced as a result of the Level 4 lockdown. For those that traded at Level 3 and Level 2, they had to shift their business models to meet the COVID-19 trading requirements. Many of those requirements squeezed margins. In the coming months, many business owners will need to look at their businesses and decide whether to continue to trade going forward. While the Government has provided some support, recovering from lockdown is just one more hurdle for businesses that have been experiencing year on year increases in operating expenses and the minimum wage, both of which have made tight margins even tighter.…

A Voluntary Administration (“VA”) is advanced where the company is cash flow insolvent or likely to become insolvent in the near future. No Court application is required to advance a VA. The Board of directors can appoint an Administrator by resolution (the Court, a liquidator or interim liquidator or a secured creditor can also appoint). If there is a winding up application (by a creditor) on foot, the Court will likely adjourn the winding up application if the Court is satisfied that it is in the interests of the creditors (Section 239ABV, Companies Act 1993). A business must be truly viable to be successfully rehabilitated. The appointment of an administrator for any other reason apart from rehabilitation is unlikely to…

There are three rescue procedures in NZ, the compromise (Part 14), the Court approved scheme of arrangement (Part 15) – an option seldom used, and Voluntary Administration (Part 15A). Liquidation is not a rescue procedure. It is usually a terminal procedure. Liquidators typically trade only for a short term for the purposes of the liquidation. The purpose of liquidation is to realise and distribute assets, not business survival. Some companies however advance liquidation for the purpose of restructuring and to purchase back part of the business from the liquidator (at market value). Some companies advance liquidation with a known purchaser lined up to purchase the business in a clean structure. The consideration attributed is often pre approved by the secured…

Even in New Zealand’s currently comparatively benign economic conditions, some businesses inevitably find themselves struggling to survive. If you want your business to survive and then flourish, you need to put a business recovery plan in place. Managing a struggling business is stressful and demanding on directors, management and staff alike. The thought of impending failure is emotionally taxing on all stakeholders. Gambling on the business’ success with money from your family or friends, or extending credit with suppliers just to get by is often a poor strategy. Hope is never a reliable method.Moreover, the ethical challenges involved in risking other peoples’ money is a major stressor for most people.   Why Businesses Find Themselves Struggling Businesses can often struggle…

As it is in all areas of business, when you are seeking advice or input on insolvency matters it is important to go to the right source. There are lawyers and accountants that specialise in insolvency but, depending of the circumstances, and what you are looking to achieve, who you choose is important. Under the current legislation, the Companies Act 1993, anyone, without conflict of interest, and with a few other exceptions, can take an appointment as an Insolvency Practitioner and be appointed as liquidator or receiver of a company. They do not have to have any formal qualification and do not have to be registered or subject to any particular code of conduct. This situation is likely to change…

How is a Receiver Appointed A Receiver is appointed under a general security agreement (GSA) or a deed, or by the High Court. A Court appointed Receivership is less common. Receivers are most commonly appointed over all present and after acquired personal property and undertakings of the company but can also (subject to the security agreement) be appointed over specific assets. A Receiver is most often appointed for financial reasons however Receivers can also be appointed as a result of shareholder dysfunction risking the welfare of the business or perhaps for the reason of fraud. A Receivership is a mechanism for secured creditors to recover moneys due to them when the debtor fails to pay. There must be a default…

Businesses get into difficulty for a range of reasons. When directors have acted in good faith and react to the situation early enough, and where there is a good prospect of recovery, a compromise may be acceptable to the company’s creditors. The purpose of a compromise proposal is to increase the likelihood of some classes of creditors receiving more than they would if the company were put into liquidation. Often, voting outcomes rely on the creditors’ opinion of the director(s) but issues can arise when related parties, who may be seen as voting to protect their own interests, are involved. Statutory Requirements The statutory requirements of a compromise are set out under Part 14 of the Companies Act 1993 (“the…

SMEs make up a large part of the insolvency work that we at McDonald Vague handle and the reasons for those insolvencies range from events beyond the control of the company directors to a complete lack of knowledge and understanding as to what is required of them.   In this article we will look at some of the causes, symptoms and actions that can be taken to recover companies facing financial difficulties.   Causes of company failure The causes of company failures, as reported to us by directors, are many and varied and the real reason is not always identified correctly by the directors. There are, however, common themes that come through which include:   1. Having all their eggs…