A liquidation is the means by which a company’s assets are collected and distributed to its creditors in a set scheme of priorities. Both the shareholders and creditors of a company can put it into liquidation through different methods.

When a company is liquidated, a vast amount of discretion is conferred upon the liquidator or liquidators. Their primary duty is to realise the assets for the highest price possible to pay out creditors.  However, liquidators are not under any strict duty to litigate potential breaches of director duties.

Accordingly, sometimes there is a big difference in steps taken by a shareholder appointed liquidator (being a liquidator appointed by the shareholders of a company) and a creditor appointed liquidator (being a liquidator appointment by the creditors of a company).

The below case study is an example of creditors replacing a shareholder appointed liquidator with a liquidator of their choice in the hopes of receiving a better outcome.

For more information about liquidations, please see our other articles. In particular, voluntary liquidations and creditor liquidations.

The following is a case study on steps we have taken for clients. If we can be of assistance to you, take advantage of our FREE 30-minute Legal Consultation.

Case Study

Originally, Norling Law was engaged to act for multiple creditors (“the Creditors”) of Vijay Holdings Limited (“the Company”) and was instructed to resolve a dispute regarding the payment of a debt from the Company to those creditors. Norling Law had previously made demands and taken steps to realise the debts for the Creditors.

Unknown to the Creditors and after demands were made, on 6 November 2020 at 11:00am, the shareholders placed the Company into liquidation. Daran Nair and Heiko Draht of Greenlane Chartered Accountants (“the Original Liquidators”) were appointed, jointly and severally, as liquidators of the Company.

Norling Law advised the Creditors that in general, shareholder appointed liquidators can be seen as “friendly” to the Company as they have been appointed by the owners of the Company (being the shareholders) and were also unlikely to pursue and litigate claims due to not being under any statutory obligation to do so.

Norling Law advised the Creditors that a creditor appointed liquidator would likely be more aggressive in examining the conduct of the Company and its directors, potentially resulting in more recoveries for the creditors of the Company.

Ordinarily, liquidators of a company must call a meeting of the creditors of the company in liquidation for the purpose of resolving whether to confirm the appointment of the liquidator or to appoint another liquidator (s 243(1)(a) Companies Act 1993 (“the Act”)).

The Original Liquidators did not call a meeting of the creditors but rather, pursuant to s 245 of the Act, provided notice to creditors to dispense with the meeting of creditors.

Subsequently, pursuant to s 314(2) of the Act, Norling Law made a request to the Original Liquidators to call a meeting of creditors for the purpose of voting on the replacement of the Original Liquidators, for a creditor appointed liquidator.

In response, Norling Law wrote to the Original Liquidators stating that the Creditors intended to exercise their right to request that the Original Liquidators call a creditors’ meeting as per the Creditors’ s245(1)(b)(iii) of the Act right for the purpose of reviewing the Original Liquidators’ appointment and to vote on whether they shall be replaced with another liquidator.

On 7 December 2020, the Original Liquidators provided notice to all creditors of the Company that the meeting would be convened on 17 December 2020 at 2:00 pm via postal ballot only, with a postal voting form that had to be submitted by 15 December 2020 at 2:00 pm.  This meant that there would be no in-person meeting and all votes had to be sent to a third party who chaired the meeting by this date.

Norling Law had 8 days to persuade the creditors of the Company to vote out the Original Liquidators.

Norling Law achieved this by individually contacting and talking to credit managers, directors, and accounts teams throughout the country, explaining the differences between a shareholder appointed liquidator and a creditor appointed liquidator.

On 17 December 2020, Norling Law received confirmation that its preferred liquidator, Gregory John Sherriff of Waterstone Insolvency was voted in, replacing the Original Liquidators. 93.33% of the number of creditors and 98.58% of the value of creditors voted to replace the Original Liquidators.

Norling Law trusts that Mr. Sherriff and Waterstone will fully investigate the Company’s affairs and the directors’ conduct with scrutiny.

Norling Law considers that this will produce the best possible results for the Creditors.

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If our expertise can be of assistance, do not hesitate to Contact us at info@norlinglaw.co.nz for a conversation or schedule a FREE 30-minute Legal Consultation with Brent.

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