Liquidations and Receiverships - The Definitive New Zealand Guide

Updated 6 August 2021

Not every business will succeed. For every startup success story, there are hundreds of everyday companies that go bust. There is a consistent liquidation process that New Zealand companies will need to go through should the need arise.

This guide covers the liquidation and receivership process, their fundamental differences, and frequently asked questions about liquidators and receiverships in New Zealand.

To help you navigate and understand what's important, our guide covers:

Know This First - Our guide offers general information only. Our list of the most popular New Zealand insolvency professionals includes:

Specialist insolvency firms (e.g. Calibre Partners (formerly KordaMentha) and McGrathNicol)
Big 4 accounting firms (PwC, Deloitte, KPMG, EY)
Law firms (Buddle Findlay, Chapman Tripp, Russell McVeagh, Simpson Grierson)

Liquidations vs Receiverships

What are Liquidations?

Sometimes companies get into debt and are unable to pay. When this is the case, a business can be forced to close through company liquidation or receivership.
Liquidations occur as a result of a company that becomes insolvent. Insolvency can either mean the debts the company owes that cannot be paid when they are due, or the total debt that the company owes is more than the value of its assets.
A liquidation means all of a company's unsecured assets are sold to repay creditors. A liquidator is appointed and will take control of the company, investigate the various financial assets and liabilities and sell the relevant assets to repay creditors.
Note that this is different to running at a loss, mainly when a business grows fast or new. If you become insolvent, make sure to take advantage of the variety of support services available.

The Liquidation Process
The liquidation process can be different depending on the circumstances (e.g. whether the company is trading or not, and depending on what assets the company has).

There are three options for a company to enter into liquidation:

A court orders the liquidation
A resolution is passed for a voluntary liquidation (by Shareholders/directors)
The creditors pass a resolution for a liquidation (typically at a watershed meeting).

From there, the liquidation process takes the following steps:

A liquidator notifies the Companies Office.
The liquidation is advertised to the general public.
A creditors meeting is held to confirm the liquidation.
The liquidation formally takes place (typically, this involves the closure of any branches, sales of any assets and settling any relevant claims)
A report is sent to the relevant creditors and the companies office for record-keeping
The administration is formally completed – which includes sending out the final report, notifying the companies office of the completed transaction and removing the company from the companies register.

A liquidation may include any number of these activities:

Wrapping up any business operations
Identifying key assets and going through the process of selling them
Reaching out to relevant stakeholders and receiving claims from creditors
Sending progress reports to relevant stakeholders (e.g. creditors and shareholders)
Investigate possible offences, unusual transactions, or director liability
Making payments to creditors that are owed money
Send the final report to creditors and notify the Companies Office (The company will then be removed from the Companies Office Register).

What are Receiverships?

Receiverships are specifically tailored for creditors. Where a creditor is owed a debt that cannot be repaid, a creditor can appoint a receiver to sell any assets that the debts have been secured against.
For instance - if you have provided a company with a loan that is secured by a car, and in the next month when the payment is due, they are unable to pay, you can appoint a receiver to legally take control of the car and sell it to pay off the debt owed to you.

Voluntary vs Court-Appointed Liquidations

The process to be followed by the administrators and shareholders of a business to wind the business up depends on the business's financial position (i.e. whether it is solvent or insolvent).

1. Solvent Companies

When the choice has been made that a solvent company is no longer required, it is often placed into liquidation by a shareholder resolution. This happens after the administrators have provided a Certificate on Solvency (Section 243 (9) of the Companies Act 1993). In addition, there is a declaration that the business will need to be ready to pay off its debts fully within 12 months after the appointment of the liquidator (Section 243 A).

2. Insolvent Companies

When the administrators of a corporation conclude that the corporate is insolvent and will stop trading, they need the choice to commence the voluntary winding up of the business by having the shareholders appoint a liquidator. The special shareholder resolution can't be passed until after the solvency resolution has been signed and filed at the Companies Office (no later than 20 days).

A second procedure for solvent companies is known as the short form removal process. This short-form process is often administered by the company's directors, shareholders or by external accountants. It is quicker and easier, without the need to notify the general public or filing various reports.

Court-Appointed Liquidation

As the creditor of a business that has failed to cover amounts owed, the sole option left is to go through a court-appointed liquidation. The process to possess an insolvent company ordered by the supreme court, on the appliance of a creditor, is as follows:

Confirm that you simply have the right legal name of the debtor company – not just a trading name.
Have a statutory demand served on the business. This provides the debtor company 15 working days to form payment or enter into an appointment to settle.
If the statutory demand isn't satisfied, an application must be filed within the supreme court to possess the corporate placed into liquidation.
Relevant documents are filed with the court and formally served onto the debtor company.
Notice is shown to the general public (typically circulated by online media or in the NZ Herald).
The liquidators will provide written consent to be appointed for the job.
The matters will be heard at a subsequent Court day set for hearing insolvency matters, and therefore, the liquidation will commence once the Associate Judge of the supreme court makes the order.
It is recommended to engage lawyers from the start of the process to ensure that the statutory demand is correctly prepared and served. The lawyers will need to be involved in the preparation and filing of the Court proceedings. The creditor that is making the application can nominate an insolvency practitioner for this.

How insolvency relates to employees

If you have employees and become insolvent, their wages and salaries owed must be paid before paying any debt owed to unsecured creditors.
The biggest amount an employee can claim as a preferential payment is around $23,000 – but this figure doesn't guarantee the amount employees will receive if an employer becomes insolvent.
Furthermore, once all the secured creditors are paid (e.g. the relevant categories of creditors like employees), there's often very little left over to pay the rest of the debts to unsecured creditors.
This is why it can potentially be riskier to give loans to companies as unsecured debt.

Top Tips to Avoid Insolvency (or to Navigate a Liquidation)

1. Measure your debt
The first thing to do is calculate your overall debt. This helps to:

Estimate how long it will take to pay off
Know what options you've got
Seek out advisors to help understand your problem
Gather all financial documents to get the foremost accurate figures you'll need.

2. Get Advice
Getting advice from various parties who are experienced in insolvencies can be a great way to get ahead. These include talking to:

Accountants/lawyers: This is the first person you should talk to regarding your situation – typically, they will know what you should do to continue trading. They can assist you to figure out the next steps and provide sound advice to avoid any similar problems you encounter in the future.
Financial advisors/CFO: Getting advice on how you can budget better can assist in cutting your costs down, slow debt growth, or obtain an agreement with the IRD to avoid penalties.

3. Take action

Supplier creditors (e.g. those you owe money to, such as suppliers, lenders, or the IRD) will need communication. This typically involves explaining your situation and discussing options to repay what you owe (or what portion you can repay).
Sometimes a viable option may be to propose to negotiate with creditors to pay in instalments. It can help to get support from your accountant, lawyer or CFO to assist in this process.
If a business that becomes insolvent owes you money, in most cases you will have a course of action you can take to formally request funds back.

Most popular New Zealand insolvency professionals:

Specialist insolvency firms (e.g. Calibre Partners (formerly KordaMentha) and McGrathNicol)
Big 4 accounting firms (PwC, Deloitte, KPMG, EY)
Law firms (Buddle Findlay, Chapman Tripp, Russell McVeagh, Simpson Grierson)

Remember: The processes detailed above are the essential steps that will be taken to wind a corporation up in New Zealand. However, the processes described might not always be appropriate due to the actual circumstances of the case.

Frequently Asked Questions

Know This First - Our guide (and frequently asked questions below) offers general information only. Our list of the most popular New Zealand insolvency professionals includes:

Specialist insolvency firms (e.g. Calibre Partners (formerly KordaMentha) and McGrathNicol)
Big 4 accounting firms (PwC, Deloitte, KPMG, EY)
Law firms (Buddle Findlay, Chapman Tripp, Russell McVeagh, Simpson Grierson)

What are the typical costs to liquidate a company?

Liquidations can vary widely depending on the company's size, industry and how well the business has been managed. In addition, the length of negotiations and how drawn out the process is will directly influence costs (as the liquidators/receivers will be charging by the day). In general, if a creditor is petitioning the court to liquidate a company, this can cost anywhere from $1,000 - $10,000+. From the founder's perspective, the liquidators or receivers will take out their costs from the company's assets or be paid by the court in some circumstances.

What's the difference between Secured Creditors and Unsecured Creditors?

There are two sorts of creditors: secured and unsecured. Secured creditors have the proper right to repossess and sell a debtor's assets if the debtor falls behind in payments (e.g. a car yard may need security over a debtor's car they are paying off, or where a bank has security over a home or property as a part of a mortgage). Unsecured creditors do not have the proper right to repossess or sell any of the debtor's assets if they default on their payments. Unsecured creditors will only have a claim to any money owed if the debtor goes into involuntary closure or becomes insolvent.

Can administrators shop back the company's assets?

The liquidator's main job is to get the best price for the assets available. If a director wants to shop for assets, the liquidator has these assets independently valued. As long as the sale is at an equivalent price or above what would be achieved on the open market, there's usually no reason why it shouldn't happen. Such sales often realise more value for creditors, as there are no auction or additional fees involved.

When should I consider insolvency?

Sooner rather than later. In many cases, the administrators have sunk further money into the company when there was no realistic chance of repayment. It is better off to put the creditors and relevant stakeholders on notice to stay fully transparent. This provides the best outcomes for all parties.

Delays also place the directors in danger of action against them personally, especially where PAYE has been deducted but not paid. As a result, the IRD is becoming more aggressive in pursuing directors personally for non-payment of PAYE. Various samples of recent IRD prosecutions can be found on the IRD website.

What is a Shadow Director?

The Companies Act defines a shadow director as a person under whose directions or instructions the company's board could also be required to act. However, the definition explains that this doesn't apply to individuals to the extent that they act only in a "professional capacity".

It is essential that professional advisors focus on providing only advice and don't cross a line whereby they're instructing or directing a company's directors. If knowledgeable advisor becomes involved in making management decisions, they run the danger of being held liable alongside the named directors within the event of insolvency.

I am a creditor of a company that's gone into default - what can I do?

If you've got credit insurance, ask your insurer whether you're covered for all or part of your loss. If you are owed on an invoice basis for GST accounting, you'll need to make a debt adjustment to your GST return (an accountant can do this for you). Taking the time to submit a form can be the best course of action because it is usually unclear whether a dividend will be paid at the beginning of a case. Firms are only permitted to pay dividends to creditors who file formal claims – so make sure that if you are a creditor, you file a claim.

How long does liquidation take from start to finish?

It varies from case to case. Easy liquidations will often be completed in three to six months. However, more complex matters can take in the upwards of several years. The factors that tend to delay a liquidation are drawn-out legal matters or sales of certain high-value assets.

When does the IRD get preference?

Always. The IRD will always rank ahead of others due to preferential treatment for PAYE and GST. These funds are expected to be held by the corporate on trust for the IRD. Core debt is also preferential and any related interest or penalties. The IRD's preferential claim will rank after any wage claims from employees, holiday pay or redundancy pay. These preferential claims are capped at a certain amount per employee.

Which parties get paid first in a liquidation?

This is a rather complicated area, but the broad outline is as follows:

Secured creditors and preferential creditors are paid first; then, unsecured creditors are next.
Creditors with specific security overstock and equipment typically have priority to recover those items where they will be clearly identified.
The categories of preferential claims are wages for employees, redundancy pay and holiday pay. Additionally, the IRD have a claim for GST and PAYE.
If there is anything left (say $50,000) remaining to pay to unsecured creditors, and that they are owed a total of $500,000, each party will receive a dividend of 10c for every $1 on their debt.

How does a liquidator get appointed? How does that differ from the way a receiver gets appointed?

A receiver is typically appointed by a bank or other creditor holding a General Security Agreement ("GSA") covering all the company's assets. Although a receiver features a duty to preserve other creditors' rights, their powers are limited. Once the GSA holder is paid, the receiver ceases to act. If there are other assets to be sold or matters requiring investigation, a liquidator will also be appointed.

A liquidator's powers are wider than the powers of a receiver. For example, liquidators typically have investigatory powers to line aside voidable transactions and convey actions for offences under the Companies Act.

The directors of a liquidated company have started another business – is this allowed?

There is nothing that prevents directors from forming a replacement business. However, if the new company has an equivalent or an identical name, or trading name, like that of the liquidated company, the directors are often held personally responsible for the debts of the new entity unless they obtain the leave of the court. They will also face a considerable fine or maybe imprisonment. These are referred to as a 'phoenix company'.

The main exception for this is where the new company buys the old company's assets from the receiver or liquidator. In this situation, the administrators must write to all creditors of the old company, advising them of the new company's formation. Additionally, directors who are consistently involved in failed companies will be blocked from acting as directors in other companies (typically on application to MBIE or the Courts).

What is a "solvent liquidation", and how does it work?

A solvent liquidation occurs where companies are removed from the register that are no longer required whilst minimising the risks related to creditor claims that can be filed later. It also allows for capital gains to be distributed to shareholders (normally tax-free).

How can you search whether a company is in liquidation?

You can find the companies in liquidation by going to business.govt.nz/companies and searching in the box the business name it legally trades with. Details of any insolvencies, alongside all reports to creditors, are listed in the documents tab.

When does a liquidator get appointed?

A liquidator is typically appointed by the shareholders or by creditors through an application to the supreme court. For shareholders, the procedure is usually as easy as signing a resolution. There are typically no legal costs involved during a shareholder appointment.

What is a watershed meeting?

A watershed meeting is where the company's creditors have the opportunity to vote on the future of a company in administration.

Related Guides

Most popular New Zealand insolvency professionals:

Specialist insolvency firms (e.g. Calibre Partners (formerly KordaMentha) and McGrathNicol)
Big 4 accounting firms (PwC, Deloitte, KPMG, EY)
Law firms (Buddle Findlay, Chapman Tripp, Russell McVeagh, Simpson Grierson)