Frequently Asked Questions
How is a Liquidator appointed?
The two most frequent methods of appointing a liquidator are :
- By a Shareholders Resolution by way of an entry into a company’s minute book.
- By way of a creditor petitioning the High Court.
It is also possible for liquidators to be appointed by way of :
- A resolution of creditors at a watershed meeting under the voluntary administration regime.
- A directors resolution if the company’s constitution allows for it.
For a shareholders resolution to be valid 75% in number and value of shareholders must sign the resolution. If 75% in value can be achieved but not in number a formal shareholders meeting can be held to put a company into liquidation.
As regards a directors resolution appointing a liquidator, this is very rare.
Are there different types of shareholder liquidations?
Yes there are two types of shareholder liquidations. These are :
a. Solvent liquidations where there is sufficient assets to cover all debts.
b. Insolvent liquidations where there is insufficient assets to cover all debts.
Are liquidator’s duties specified?
Yes liquidator’s duties are specified in the Companies Act 2003.
How are proceeds in a liquidation distributed?
The Companies Act 2003 coupled with Schedule 7 of the Liquidation regulations specify where proceeds are to be distributed. Distribution can be complex in that some creditors are required to register charges under the Personal Properties Security Act to protect their payment ranking. This is not always actioned.
Can anybody be appointed a liquidator of a company?
The Companies Act 2003 prohibits certain persons from being a liquidator. Unfortunately the list of prohibited persons is limited in scope and this has resulted in a number of parties with criminal convictions acting as liquidators. It is expected that within the next year all liquidators will need to be accredited.
Are there time limits on the ability of shareholders to appoint a liquidator?
Yes under the Companies Act 2003 shareholders have 10 working days from the date of service of liquidation proceedings to appoint their own liquidator.
What will it cost me?
Insolvency practitioners charge an hourly rate. Where no assets exist to cover costs a fixed fee will be agreed up front. Where assets exist director/shareholders will not be asked to contribute towards liquidation costs. In effect the reality is creditors cover the cost which obviously can include the IRD.
What is the difference between a liquidation and a receivership?
The normal receivership is one where a security holder appoints a receiver to take effective control of the company. The receiver will attempt to realise sufficient assets to repay the security holder. A receiver normally conducts limited investigations into the past.
It is possible for the High Court to appoint a receiver. The Court Order will specify the receivers duties. Court appointed receiverships in New Zealand are rare and more often than not relate to companies that have borrowed money from the general public on an unsecured basis.
A liquidator will also sell assets and may be required to make payment to secured lenders. A liquidator however has a duty to investigate the past. A liquidator is likely to particularly look at payments made in the two years prior to see if they can be clawed back.
Can a liquidator continue to trade after appointment?
Yes the liquidator can continue to trade in an attempt to maximize asset recoveries. It is a commercial fact that assets are normally worth more if they are utilized in a trading business.
Is it possible for a creditor to force a company into liquidation prior to a formal liquidation hearing?
Yes the High Court has power to appoint an interim liquidator where liquidation proceedings have been filed but not heard.
What changes to Insolvency Law are likely to be made in the coming year?
Almost certainly liquidators will need to be accredited. Some major changes have been recommended to the voidable recovery rules which will make it easier for liquidators to recover preferential payments. It is possible the IRD priority will be limited to a 6 month period. Several other technical changes have been mooted.