We are often asked ‘how do liquidators’ work’ and what are their rights regarding access to company records and information. To clarify we have put together this article. When a liquidator is appointed over a company, either by the shareholders or by order of the High Court, one of the first steps taken will be to locate and uplift the books and records of the company and to seek information about the business, accounts or affairs of the company to enable a full review to be undertaken. The purpose of the review is to – Establish the financial position of the company at liquidation; Ensure that all assets have been properly accounted for; Identify any other avenues of recovery for…

A recent case in the Hamilton High Court looked at the requirements on a liquidator to accept the claims of creditors and to call a meeting of creditors to decide if a replacement liquidator should be appointed. The Law on Calling a Meeting with Creditors Where a liquidator is appointed by shareholder resolution they are required to call a meeting of creditors within 10 working days of their appointment pursuant to section 243 (1)(a) of the Companies Act 1993 (“the Act). This requirement can be dispensed with, pursuant to section 245 of the Act, if the liquidator considers, having regard to the assets and liabilities of the company, the likely result of the liquidation and any other relevant matters, that…

Global Textiles Limited (In Liquidation) We were appointed liquidators of Global Textiles Limited (“Global Textiles”) on 13 March 2015 and are now in the final stages of the liquidation. Prior to our appointment, Global Textiles had been in business for nearly 20 years.  It supplied textiles to a number of brands in New Zealand and Australia from Jean Jones to small businesses.  It was also the designer and wholesaler of a popular clothing brand. With the emergence of globalisation and technology allowing easy access to markets outside of New Zealand, the local textiles industry has moved into the sunset phase of its life cycle. With cheaper imports from overseas coming into the market, Global Textiles’ traditional customers were increasingly demanding…

One of the first tasks facing liquidators after their appointment is to ascertain and communicate with those people and entities who can rightly register a claim in the liquidation as a creditor. Generally, this information will be provided by the directors of the company, along with copies of unpaid invoices or statements on the individual accounts, but not all eligible creditors are that easily identified. Section 303 of the Companies Act 1993 ("the Act") sets out the admissible claims in a liquidation - Claims admitted - Subject to subsection (2) of this section, a debt or liability, present or future, certain or contingent, whether it is an ascertained debt or a liability for damages, may be admitted as a claim…

From time to time we are approached by persons or companies pursued by liquidators of other insolvency firms. We are also asked to provide guidance or opinions on how a liquidator should act, what is reasonable and how to respond to demands/requests. Insolvency specialists take different approaches and some Insolvency Practitioners ("IP") do not always act in the best interests of the company creditors. There have been several reported instances in recent years. 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. This blog post discusses the…

Part 2 of 2   Following on from our earlier article dealing with how liens over company records are treated in a liquidation, we will now cover how liens are dealt with in receiverships and bankruptcies, and how to handle a lien held over the assets of the entity. Bankruptcy lien over records and documents Upon the adjudication of a bankrupt all of their property is vested in the Official Assignee under Section 101 of the Insolvency Act 2006.  For those records that are not in the possession of the Official Assignee a written request is made for their surrender under Section 171 of the Insolvency Act 2006.  This request encompasses any document that relates to the bankrupt's property, conduct,…

The solvency test is not required to be met each day a company trades.  It is required for certain transactions including distributions and dividends and requires the company to demonstrate it can meet two tests.  These tests are the trading solvency/liquidity test and the balance sheet solvency test.   To satisfy the solvency tests, a company must be able to pay its debts as they become due in the normal course of business; and the value of its assets must be greater than the value of its liabilities (including contingent liabilities). One objective of the solvency test is to control all transactions that transfer wealth from a company.  In a liquidation context, where transactions have occurred when the company did not…

Part 1 of 2  Having a customer go into liquidation is never appreciated.  There is a potential loss of profit, and as such, creditors generally seek to secure and protect their situation through whatever means necessary. In a perfect world, the creditor will be secured by way of a perfected security interest under the Personal Properties Security Act 1999 that leads to gaining a super priority to recovery of equipment or to unpaid stocks and potentially a recovery from proceeds relating to those unpaid stocks.  However, often there is no security and no assets on liquidation. On occasion, however, the creditor will find themselves in possession of company assets and records over which they have no registered security, and the…

On 15 September 2014, insolvency and business recovery specialists McDonald Vague advised 288 former employees and unsecured creditors totalling $13.112 million that a total dividend pay-out of 100 cents in the dollar had been made to most of them. Given that this was a large corporate failure with initial unsecured claims in excess of $25 million this is a significant pay-out. Early on in the liquidation it looked like creditors would face a nil dividend.  The steps taken to achieve this result include: Engaging in, and winning, a significant arbitration award relating to DML's mining operations at Waihi. Establishing the unsecured creditors' position by disputing and settling several significant unsecured claims for amounts primarily owed by other companies related to…

Many of our clients don't deal with insolvency on a daily basis, and therefore have only a fairly generalised idea of what we do. This article seeks to provide a better understanding of how the liquidation process works. It also demonstrates how choosing the right insolvency practitioner can result in funds being recovered for creditors that would otherwise not be available.   The liquidation process  Most people have a basic intuitive feel for a liquidator's role. This is usually that he or she closes down a business, dismisses staff, sells assets and collects debts. This may well be true, but generally such activities form only part of a much more involved process. Liquidators have very wide powers to investigate a…

The following are some issues which tend to crop up on many of our liquidations. Vehicles claimed by directors A minor, but often emotive issue, is the car "owned" by the director. The director states it is their car, and it is registered in their name. Registration, however, does not prove ownership and if the car is in the company's accounts and shown on the depreciation schedule, the liquidator will fulfill one of their principal duties by taking possession of the car and selling it. Share capital not paid up Under modern company law, shares have no nominal value. Too many times we hear that if a company has 1,000 shares then there is an obligation on the shareholders to…

McDonald Vague provides a specialist service conducting solvent liquidations. Companies are often put into liquidation this way when a business has been either sold, closed down or reorganised for tax and/or management purposes.   Capital gains on company sales Under current New Zealand law, companies that have sold their business at a capital profit can then, on liquidation, distribute that profit to their shareholders tax free (arm's length transactions only) under Section CD26 of the Income Tax Act 2007. There is often debate as to whether a formal liquidation process is necessary to distribute tax free capital profits, or whether it is sufficient to simply have the company struck off the Companies Register. When large sums of money are involved,…