Voluntary Liquidation

Liquidation

In New Zealand, companies can struggle to pay all debts in full. This can occur for a variety of reasons.

An inability to pay debts can result in Liquidation, Receivership or Voluntary Administration.

We assist our clients to navigate insolvency and to determine the correct procedure or whether an alternative will result in the best outcome for all concerned.

At Norling Law we have expert insolvency and liquidation lawyers and we offer a FREE 30-minute Legal Consultation where we can discuss the issues and we can add strategic value. After the discussion, we can decide whether we can help you and at what cost.

Shareholder Resolution

A company may be placed into liquidation by the passing of a special resolution of its shareholders.

For a special resolution to pass, it requires the majority of 75% (or a higher majority if the constitution requires it) of the votes of those shareholders entitled to vote and voting on the question.

The 10 Day Rule

However, the shareholders are unable to appoint a liquidator of their choice after 10 working days of service of an application to liquidate the company by an entitled person (for example, a creditor).

Any appointment after the expiry of 10 working days is invalid and the Court will appoint a liquidator in their place.

Removing a Shareholder Appointed Liquidator

Once the shareholders appoint a liquidator of their choice, the common perception among creditors is that the liquidator will be ‘friendly’ and will not pursue the directors/shareholders should valid claims exist. In some circumstances, these perceptions are well-founded, in other cases, they are not.

In this context, the most cost-efficient method to replace the liquidator is to have a resolution passed replacing the liquidator at an initial creditors meeting. The process for the calling of a creditors’ meeting is as follows:

  1. The liquidator must give notice of the creditors meeting to every known creditor.

  2. If the liquidator has decided not to call a meeting, the liquidator must give notice to creditors advising that no meeting is intended to be held and explains the reasons.

  3. In the event that a creditor wishes a meeting to be held, the creditor must notify the liquidator in writing within 10 working days of the liquidators’ notice to dispense with a creditors’ meeting.

The timeframes to call this meeting is crucial. If a creditor fails to notify within the statutory timeframes, the opportunity to present a resolution to replace the liquidator is lost.

All creditors’ meetings must be held pursuant to the prescribed procedure.

On some occasions, the liquidator will remain in office with the support of the creditors related to the shareholders of the company. In such situations, related party votes can be set aside.

Creditor Committee

It may become useful for a liquidation committee to be appointed at the creditors meeting. A liquidation committee has a supervisory role over the liquidators.

Who Should be Appointed as Liquidator?

The perception created upon the appointment of the liquidator by the shareholders can be based on valid grounds but sometimes the perception can be nothing more than a perception. Creditors ought to be encouraged to investigate the individual liquidator and their history in similar situations.

Fortunately, judicial decisions are publicly searchable so it takes an insignificant amount of research to determine the liquidator’s reputation.

In the event that the perception is real, the process outlined above is recommended to obtain a liquidator who will pursue the interests of creditors vigorously.

The Liquidation

The Liquidators primary duty is to take possession of and sell assets for the benefit of creditors.

A liquidator will:

  1. Call a creditors meeting (in some cases);

  2. Investigate the affairs of the company;

  3. Investigate the governance of the directors;

  4. Take possession of the company’s asset;

  5. Realise assets;

  6. Distribute funds;

  7. Report any criminal activity.

Can Shareholder/Directors be sued?

In reality, most Liquidators do not sue those who appointed them. However, some do.

Liquidators have many causes of action to sue Director/Shareholders. Some of these are:

  1. Overdrawn Current Accounts;

  2. Transactions at undervalue;

  3. Breaches of Director Duties;

  4. Failing to prepare financial records;

  5. Voidable Transactions.

Liquidators can take action against directors and there can be serious consequences.

More Information

There is a process to Appoint your own Liquidator.

We assist clients to navigate this process correctly. There are many pitfalls if implemented incorrectly.

Please refer to our People for more information on who we are, our experience and how we can help you.

If our expertise can be of assistance, do not hesitate to Contact us for a conversation or Schedule a FREE 30 minute Legal Consultation with Brent.

We have offices on the North Shore in Auckland, New Zealand or can have the consultation by phone.