McDonald Vague has moved offices. Our new address is: Level 10, 52 Swanson St Central Auckland The new offices are located next to the recently refurbished St Patrick's Square. There are a number of parking options available - either on street - pay and display, at Wilson Parking on Swanson Street or at the Farmers Carpark on Hobson Street. Please note our phone numbers and postal address have remained the same. We look forward to seeing you there! DISCLAIMER This article is intended to provide general information and should not be construed as advice of any kind. Parties who require clarification on issues raised in this article should take their own advice.

This month we conclude our discussion of the rights of unsecured creditors in various insolvency proceedings, by looking at the position in a liquidation. IntroductionA liquidator is normally appointed either by the shareholders or the High Court. The shareholders choose their own liquidator. The High Court appoints a liquidator chosen by the applicant creditor. More unusually, a liquidator can also be appointed by creditors at the 'watershed meeting' in a voluntary administration - seePart 1of this article. A liquidator has a duty to take possession of, protect, realise, and distribute the proceeds of realisation of the company's assets to its creditors. He or she looks after the interests of all creditors. The plight of the unsecured creditorUnsecured creditors do not…

When a company fails one of four things usually happens:- A receiver is appointed An administrator is appointed It enters into a compromise with its creditors It is put into liquidation (this will be covered in Part 2) This article seeks to explain the rights that creditors have in each of the above insolvency proceedings. It is written from the perspective of the ordinary unsecured creditor. 1 - Receivership The purpose of receivership is to repay the debt owed to the General Security Agreement ("GSA") holder.  GSA holders tend to be banks but can also be private lenders (including directors and family members). The receiver's obligations are primarily to the GSA holder who appointed them. If a receiver holds surplus…

Business involves hard work and a bit of luck (or magic, given that only 29% of new businesses survive their tenth year). When things go wrong, a news release or a prosecution does not help creditors. Money in the hand does. Dear Peri Just a quick note to say you have restored some of my confidence in human nature. I received $438.75 from the liquidation of [name removed]. Funds we thought we would never see again. Thanks Steve Remedying the situation monetarily is, however, interesting in a liquidation. Commonly, particularly in a High Court liquidation, any tangible assets of material value have been disposed of prior to liquidation, and the directors may be facing the prospect of bankruptcy. The unsecured…

Introduction In August 2011, the High Court issued an important decision in Burns v Commissioner of Inland Revenue on the widely argued question of "what is an account receivable?". This followed an earlier decision (re Northshore Taverns, 2008) in which the High Court decided that "accounts receivable" amounted to "book debts" only. This may sound like an academic point, but it is very important in determining which creditors receive distributions from the various sources of funds realised in a receivership or liquidation. The decision has positive implications for employees and the IRD as preferential creditors, and negative implications for General Security Agreement ("GSA") holders and guarantors. The legal issue The Seventh Schedule to the Companies Act 1993 sets out the…

When commencing a receivership we often expect that it will involve a relatively straightforward sale, realisation and distribution process. However, it is increasingly common in these economic times for the receivers of an insolvent company to be considering and dealing with not only its creditors' interests but the positions and creditors of other, potentially competing, insolvent entities. The factual scenario Matakana was a winemaker. It had a related company, Goldridge, whose role was to market the wine. The Vintage companies ("Vintage") were set up to raise money from outside lenders and to hold that money to be paid when invoiced for the cost of the grape juice and for bottling the wine, and then supply the bottled wine to Goldridge.…

Introduction A Chartered Accountant providing business services arrives at results through double entry bookkeeping. That is, for every debit there must be a credit. That same accountant, although they are excellent at their job, may be confused if they are asked to draw conclusions from inadequate records. On the other hand, the forensic accountant thrives on inadequate records and is used to coming to conclusions by drawing information from different places and bringing it together to a meaningful conclusion. One of the duties of a liquidator is to realise the assets of a company. Often those assets take the form of a claim against someone who has defrauded a company. For a liquidator to do their job properly they must…

A Part 5 Subpart 2 proposal under the Insolvency Act 2006 gives a debtor an alternative to bankruptcy.  If the proposal succeeds, then the insolvent is bound by the proposal and does not have to comply with the usual provisions of a bankruptcy.  For example, the debtor may carry on in business and have more than one bank account, and is not prevented from leaving the country. Proposals are called Part 5 proposals because they fall under Part 5 Subpart 2 of the Insolvency Act 2006.  The person who is subject to a proposal is called "the insolvent." A proposal is in effect a contract between a debtor and his or her creditors.  The insolvent may put an offer to…

This article discusses when to accept a company compromise, and suggests what modifications and amendments can be asked for, and when to reject a compromise. What is a compromise? A compromise is an agreement between a company and its creditors. Most compromises have two basic features. They provide:- That creditors are paid their debt in part or full over a period. If they are to be paid in part, then the creditors write off the balance of their debt That during the term of the compromise, debts are frozen and no creditor may take any action against the company A compromise as perceived by creditors It seems to us that compromises with creditors can make otherwise rational people break out…

When a person is faced with a bleak financial situation, bankruptcy may appear to be the only outcome. However, there are certain circumstances where this may not have to be the case. Part 5 of the Insolvency Act 2006 provides for alternatives for individuals facing bankruptcy - and the Subpart 2 proposal option can be very beneficial to affected parties. Potential benefits of the Part 5 Subpart 2 proposal As an insolvency practitioner with extensive experience in this area, I have acted as trustee for a large number of individuals and successfully negotiated terms with their creditors to the advantage of all concerned. I have found that the Part 5 Subpart 2 proposal option has become more popular for: insolvent…

Rule number one in insolvency is to "secure the asset".The recent catastrophes around the world have had a dramatic effect on the New Zealand insurance industry and the ability to obtain insurance.  In particular the Christchurch earthquakes have made it more difficult and costly to obtain insurance cover for some of the properties and goods we need to secure.  We asked Geoff Blampied, CEO, Aon New Zealand to provide some comments and advice on the subject. Geoff writes: Global Perspectives Firstly, we need to look at the Christchurch earthquake losses from a global perspective in order to understand the issues.  Christchurch has now suffered three major quake losses and numerous aftershocks with total estimated insured claims of $26 billion.  These…

Are you likely to be forced to repay to a liquidator money previously received from a customer? It has become relatively common for suppliers and others to be challenged by liquidators to repay funds that they have previously been paid. Prior to the change of rules in late 2007, the contentious issue was determining what "the ordinary course of business" meant. The decisions surrounding liquidators' challenges did not discourage conventional or usual debt collection measures. Since the McEntee Hire decision in August 2010 we have observed an increase in liquidators sending out letters seeking to challenge transactions. It is disappointing that some liquidators seem to take an approach of challenging all payments made, rather than first considering whether there has…