Company strike off or dissolution is the process where a Limited Company is removed from the Companies Office register. Following removal, the company ceases to exist.
There are essentially three options to end a New Zealand company. These are:
• A short-form removal from the companies register (solvent companies)
• long-form removal – a solvent liquidation or insolvent liquidation, or
• doing nothing, failing to file an annual return with the Companies Office (“the short cut method”).
The third option is not recommended. The short and long form methods minimise risk. Failure to file an annual return does not put an end to debt in an insolvent company. It also does not provide any certainty that the company is at an end.
Many directors and shareholders of companies facing financial difficulties are tempted to simply abandon the company and fail to file an annual return and following the expiry of one year, the company is struck off. Failing to file an annual return is actually an offence under the Companies Act 1993. The shortcut approach comes with risks and the prospect of company restoration. The effect of strike off on a company that has not dealt with all assets and liabilities in the proper process can include:
• for a solvent company, share capital and capital gains are not distributed tax free, shareholders could be liable for tax on distribution and this can create overdrawn current account issues.
(To distribute capital gains tax free, they must be distributed after the liquidation process has started. The process is started by completing a resolution to liquidate a company)
• the forfeiture of tax credits held at IRD – which can only be refunded if the company is restored;
• the loss of losses carried forward and imputation credits (unless company restored);
• assets not distributed prior to strike off become crown property unless the company is restored;
• land and property held in the company name cannot be transferred;
• A strike off is not a means to avoid a contingent liability claim;
• A strike off is also not a means to avoid a s 385 prohibition notice;
• reinstatement by the Registrar is straightforward if the company is a party to legal proceedings and those proceedings commenced prior to removal;
• reinstatement by the Registrar is able to be advanced if the company was in liquidation or receivership or both at the time
• The court has a wide general discretion to restore a company to the register if it is satisfied for any other reason, it is just and equitable that the company be restored to the register (s 329(1)(b));
• there is no statutory time limit for restoration to occur;
• there exists the potential review by the Registrar that proper books and records have been kept under Sections 189 and 194 of the Act, records to include documents, minutes of meetings, resolutions of shareholders and directors, copies of written communications to shareholders, copies of financial statements and accounting records. (Failure to keep accounting documents at the Company’s registered office is an offence punishable by a fine of up to $10,000 for both the company and directors).
A company that has been restored to the register is deemed to have continued in existence as if had never been removed from the register: s 330(2). This means any interest/penalties that have been incurred in the period from strike off to reinstatement are due. It also means company records must be brought up to date.
The short form liquidation or formal liquidation process may be a more costly exercise but avoids the headache that can be faced with the consequences of a company restoration. The short-form removal process is best suited to a company that has little trading history and/or has held minimal assets, is subject to low commercial risk, and no contingent liabilities. A solvent liquidation costs more than a short-form removal but minimises the risk of the company being reinstated through a creditor application.
An insolvent liquidation involves an independent licensed insolvency practitioner managing the winding down of the company and the appropriate dealing of assets and distributions.
For advice on the options and the best way to wind up a solvent or insolvent company contact our team at This email address is being protected from spambots. You need JavaScript enabled to view it.