The Company Law in New Zealand covers all the aspects related to opening, running and closing a local company. When it comes to winding up a company, there are several options, among which there is also the company liquidation procedure of the New Zealand business.
Company liquidation in New Zealand will usually occur when the business can no longer pay its debts. Winding up a company in NZ can be voluntary or compulsory.
Below, our lawyers in New Zealand explain the procedures related to liquidating a company in this country.
Voluntary liquidation in NZ
Voluntary company liquidation implies an agreement between the New Zealand company’s shareholders. Based on this agreement, the shareholders will file the decision for liquidation with the Trade Register and will appoint a liquidator.
In the case of voluntary liquidation in NZ, the liquidator has an important role in the process. He is the one who will conduct the investigations related to the company’s financial status and the motives for the business failure as well as see if any offences were committed during the company’s existence. It is important for the liquidator to be a licensed insolvency practitioner.
The liquidator is the one who, immediately after the process begins, takes control of the company’s unsecured assets, freezes all of them and will then sell them to repay the creditors and the shareholders (with the remainder of the assets after they have been distributed to the shareholders).
The liquidator will and shall deal not only with the company directors, shareholders and creditors but also with past and present employees, solicitors, bank representatives and any other relevant parties.
There is no need for the company’s representatives to appear before a New Zealand court, however, they can do so in order to have a liquidator removed.
Our law firm in New Zealand can advise company representatives in case of voluntary winding up.
Working with a team of accountants in New Zealand during the liquidation phase is helpful for settling any existing debts and liabilities, making the final payments to the employees (if applicable), drawing up a comprehensive list of assets and distributing the remaining funds to the shareholders. You can rely on our team for complete services during the closure of a company.
Compulsory liquidation in New Zealand
Compared to the voluntary liquidation in NZ, the compulsory winding up requires the appearance before the court of law. This is because compulsory liquidation can be requested by a business’ creditors. Compulsory liquidation can also be requested by the majority of the managers of the company or by the Trade Register in New Zealand.
You can also rely on our New Zealand lawyers for assistance in compulsory liquidation cases. Winding up a company in NZ becomes more complex in this case and legal assistance is recommended. We can help answer your questions if your company has started to experience financial difficulties or is already unable to pay its debts to creditors.
Company liquidation steps in New Zealand
No matter the type of company liquidation procedure a New Zealand company undergoes, the steps are the same. These are:
- the decision to liquidate: the company is no longer able to pay its creditors; the decision is made by the shareholders or decided by a judge;
- liquidator appointment: a liquidator must be appointed and he takes charge of the business and assesses all the assets of the company;
- liquidation administration: the company liquidation procedure in NZ starts and this means that the company can be closed; the final step is to pay the creditors and then divide the remaining assets among the shareholders;
- liquidation completion: the final liquidation report is sent to the creditors; the company will then be removed from the Companies Office Register.
It is common to hold a creditor’s meeting in order to confirm the appointment of the liquidator. the administration of the liquidation is a multi-step process that can include the closure of the business and will focus on settling the creditor claims but will also include a stage during which the dividends are paid. During this time, ongoing reports are sent to the creditors and the Companies Office.
As part of the liquidation process, the company directors will be asked to complete a document called the Statement of Affairs. This includes information on the company’s history, trading information, details on the reasons that lead to the company’s financial difficulties (failure), information on all the company assets, liabilities and its shareholders as well as any legal claims made against or by the company. The directors and the shareholders will be subject to a verification process to determine if they owe company to the company and if they have committed any offences.
The funds that cannot be paid from a liquidation are forwarded to the Public Trust and become part of the Liquidation Surplus Account. According to the Companies Act, a liquidator can apply for a payment from these funds in order to cover costs such as those for the proceedings or for using expert witnesses. The application is submitted to the Official Assignee for New Zealand, however, the proceedings should have a public interest in order to approve the use of the funds.
According to the New Zealand Insolvency and Trustee Service (ITS), most of the liquidations that took place in 2020 were in Auckland. The statistical data shows the following:
- in July 2020 there were 7 total liquidations: 4 ITS administered liquidations in Auckland, 1 in Hamilton and 1 in Wellington; 1 liquidation was voluntary;
- 2 liquidations were administered in September, and 4 in October;
- in November 2020 there were 4 liquidations and in December there were 6: 1 voluntary one and one liquidation each administered by ITS in Auckland, Blenheim, Dunedin, and Hamilton.
All the parties involved in the company, from its shareholders to its employee, to the legal structure itself, are influenced by the liquidation. Here are the effects of the company liquidation procedure in NZ:
- The company: the business will continue to function for a short while in order to be sold; however, in some cases, trading companies cease their activities altogether (usually they are closed down);
- The directors and shareholders: they will be asked to provide documents and assist the liquidator during the process; they cannot destroy, hide or otherwise remove essential documents (penalties include fines and imprisonment); if any surplus remains after settling the creditors, the shareholders will divide it between them;
- The employees: it is most likely that they will be affected by the liquidation of the liquidator decides that the company will cease it activities; in some situations, employees can file a claim in the liquidation (if they are owed wages);
- The creditors: only secured creditors can deal with the secured assets of the company, unsecured ones cannot take legal action against the company in liquidation nor deal with its property (unless they have been allowed to do so by the liquidator or the Court).
As far as the company’s obligations are concerned, once it goes into liquidation it is no longer required to file the annual return.
The company liquidation procedure in NZ ends when the Registrar removes the company from the register. This takes place after the liquidator sends the final report. Likewise, the company is removed from the Registrar if no liquidator is acting for the company.
For assistance in winding up a company in NZ, please contact our law firm. We can also help you open a company in New Zealand.