Due to both a lack of sufficient legislative regulation and in order to bring New Zealand Insolvency Practitioners further in line with Australia and other jurisdictions, the Restructuring Insolvency and Turnaround Association of New Zealand (RITANZ) working alongside Chartered Accountants Australia New Zealand (CAANZ) has developed a framework of self-regulation. Under the various acts Insolvency Practitioners are charged with administering, there are only negative licensing regimes in effect. These regimes only exclude individuals from acting as Insolvency Practitioners if they fail to meet a specific set of criteria. These include the Insolvency Practitioner being: over the age of 18; of sound mind; not currently an undischarged bankrupt; and having no continuing business relationship with the insolvent company.   This new framework requires…

Amongst the director duties imposed by the Companies Act 1993 ("the Act") directors must keep proper accounting records (section 194), and their remuneration must be properly authorised by the board and recorded in the company's interests register (section 161). Without proper accounting records directors' ability to perform their other duties can also be affected. If directors fail to perform their duties they may face fines, personal liability for company debts, or orders to compensate the companies concerned for losses caused. The case of Madsen-Ries and Vance v Petera [2015] NZHC 538 dealt with various breaches and remedies in respect of directors' duties, and the judgment is well worth further study for both directors and insolvency professionals. Madsen-Ries and Vance v…

With power comes responsibility, and the duties imposed on company directors are extensive and onerous. Whilst business is brisk and revenues swell, breaches of directors’ duties often go unnoticed and without serious repercussions. When fortunes change, a director’s conduct, even years before, can come under close scrutiny from various quarters. As matters go from bad to worse, these parties include shareholders, creditors, receivers, liquidators and regulatory enforcement. Section 126 of the Companies Act 1993 (“the Act”) widely defines directors; effectively including shadow and silent directors, as well as those who although not duly appointed, exercise certain powers of a director. Calling to account Under the Act, liquidators have extensive powers to investigate the affairs of failed companies and the conduct…

An increasing number of building firms "went bust" in 2014 despite the building boom in Christchurch and Auckland, leaving homeowners, contractors, and the taxman out of pocket.  As the construction boom in Auckland gathers pace the situation is going to get worse. Nearly 100 rebuild-related companies have gone into liquidation or receivership in Christchurch alone since the February 2011 earthquake. We see the same trend occurring in Auckland. People often ask us why so many building firms are going under as they should be making a fortune.  The simple answer is that the good ones are, but there are many that have been caught out by over trading (transacting more business than the firm's working capital can normally sustain), thus…

Creditors of companies that fail are often shocked and angered by the ability of directors of the failed company to start up a new business and carry on as though nothing happened. They cannot accept that they are suffering because of the losses they are facing whilst the people they see as being responsible for the losses appear to suffer no ill effects. Who is at fault? It is important to note that the debt owed to the creditor is owed by the company, not the directors personally.  A limited liability company has its own separate legal identity and it is generally only when the directors have given personal guarantees in favour of particular creditors that they become personally liable…

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,…

Workplace investigations can detect the source of lost funds, identify employee misconduct and possible culprits, as well as help recover losses.  They are usually undertaken when there is alleged employee misconduct, or a rumor of something amiss comes to the attention of the employer which requires action. Investigations must be undertaken in a fair and reasonable manner without bias. Investigations into employee misconduct can cause significant problems.  They can also be expensive, time-consuming and disruptive to organisational morale.  Investigations which are not conducted in an ethical and transparent manner, with the utmost care and confidentiality, can lead to a number of legal issues and other unexpected complications.  Well-done workplace investigations can provide a solid defence to legal challenges raised by…

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…

Last week's Supreme Court judgement on Jennings Roadfreight Limited (In Liquidation) has overruled an earlier Court of Appeal ruling and provided clarification on a legal grey area. The Supreme Court has decided in a unanimous decision that amounts due to the IRD rank behind liquidators, employees and Kiwisaver entitlements' to funds in a bank account at the commencement of a company liquidation. The history and details of the case are as follows.  JENNINGS ROADFREIGHT LIMITED (IN LIQUIDATION) and BORIS VAN DELDEN and PERI MICAELA FINNIGAN AS LIQUIDATORS OF JENNINGS ROADFREIGHT LIMITED (IN LIQUIDATION) v COMMISSIONER OF INLAND REVENUE Jennings Roadfreight Limited (Jennings) was placed into liquidation on 24 March 2011. Its liquidators are Boris van Delden and Peri Finnigan of…

It seems like a typically Kiwi thing to do - a couple of mates decide to go into business together and start up a company to operate the business.  Everything is split down the middle - each director owning 50% of the shares and all agreed on a handshake. What could go wrong? The recent liquidation of a small business shows just what can happen.  Things went well for the first couple of years.  Business was going okay and making a small profit but then things started to go wrong. The relationship broke down between the shareholders and got to the stage where they couldn't agree on anything to do with the business including staff management and business direction. Legal…

Cloud Software Claimed Users Xero 371,000 plus LinkedIn 260 million plus Dropbox 300 million plus Google – Email 500 million plus Increasingly, we are using the Cloud to create, manage and store documents, such as through Xero, LinkedIn, Dropbox and Google. However, the Cloud is unique in that control of the documents passes outside of your physical possession and onto someone else's computer, which is often overseas.   Consequentially, there are several issues that a business owner needs to be aware of.  - How secure is your data and how much control do you have over it once it is in the Cloud? Often, you will have no idea where the data is stored, you have no idea how the…