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, we believe it is prudent to carry out a formal liquidation that cannot subsequently be challenged by potential creditors. Even though the company may have been removed from the register in a strike off, this will not prevent acrimonious third parties from having the company reinstated at a later date. A formal liquidation ensures peace of mind.

Reorganisation of company affairs

McDonald Vague is particularly experienced in reorganisation of companies, especially those with a foreign parent. Amalgamations are commonplace and old entities no longer required are absorbed.

Company "deaths"

For a variety of reasons, a company will often reach the end of its useful life. Whilst shareholders may do nothing (annual returns not filed) and wait for the Registrar of Companies to remove the company from the register, shareholders in some circumstances will want some finality to the process. Although the company may have paid all known debts, the shareholders can rest assured that once the formal liquidation process has been completed they are highly unlikely to be called upon for anything that may arise in the future.

Processes involved

The directors of a company must first make and file resolutions as to solvency before the liquidation can commence. The shareholders then pass a resolution to appoint a liquidator. The liquidator deals with any liabilities of the company and distributes surplus assets to the shareholders in accordance with their rights.

With an insolvent company the liquidator realises the assets and distributes the cash in accordance with the various priorities. With a solvent company it is possible to make an "in specie" distribution. That is, the assets themselves can be distributed to the shareholders in proportion to their shareholding.

Solvent liquidations we have undertaken

McDonald Vague has performed numerous solvent liquidations. Some of the many assignments we have undertaken have included:-

• A group of property management companies (no longer trading) with a parent company domiciled in Hong Kong
• A pharmaceutical supplies company where the business was sold for capital profit
• The reorganisation of a group of insurance and financial asset management companies
• A forestry development winding up
• A New Zealand advertising agency sold to a major international group but requiring a lengthy liquidation to allow for transfer of intellectual property
• An investment company (no longer trading) with a US parent company
• An in-store promotions company where the business was sold for capital gain
• A Canadian owned manufacturer and distributor of beverages
• A technology investment company
• A retailer and distributor of industrial and other chemicals
• A company specialising in the development of a prominent software package for accountants where the intellectual property was sold for capital gain

Please contact Peri Finnigan on 09 303 9519 for confidential, no obligation advice on this area.

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.