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.
| Quick Facts | |
|---|---|
| Types of company liquidation in New Zealand |
Voluntary and compulsory |
|
Initiating voluntary liquidation |
By an agreement among the company’s shareholders – The liquidation decision must be filed with the Companies Office within 20 working days. |
|
Documents needed for voluntary liquidation |
– directors’ declaration, – liquidator consent, – liquidation resolution, – liquidator appointment notice, – call for creditors, – liquidation report, etc. |
| Debt payment requirement | Within 12 months of the liquidator’s appointment |
| Role of liquidator |
– performs a company financial analysis, – handles the asset sale and distribution, – interacts with company’s personnel, – files reports with with the Companies Office, etc. |
| Compulsory liquidation – characteristics |
Initiated through the court by creditors, a majority of the company’s managers, or the Trade Register. |
| Notice for creditors |
Must be published in the New Zealand Gazette and a local newspaper. |
| Appointing the liquidator |
By the shareholders (for voluntary liquidation), High Court (for compulsory liquidation) |
| Removal of liquidator |
Our attorneys suggest receivership and voluntary administration as alternatives. |
| Alternatives to company liquidation |
– California Civil Code, – California’s Code of Civil Procedure |
| Distributing the proceeds from the liquidated assets |
Following the order of priority |
| Documents for creditors proving their claims |
– contracts, – official correspondence, – unpaid invoices, – claim form, etc. |
| Company liquidation duration |
1-2 years (approx.) |
| Regulatory framework for company liquidation |
Companies Act 1993 |
| Assistance from our lawyers |
Our law firm in New Zealand and our partner accountants manage all the aspects of company liquidation. |
Table of Contents
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 voluntary liquidation in NZ, the compulsory winding up requires an appearance before a 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. It will focus on settling the creditor claims and 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.
We invite you to watch a short video about company liquidation in NZ:
The administration of the company liquidation in New Zealand
Several steps are relevant during the liquidation administration procedure, and they can vary on a case-by-case basis, depending on the company’s particulars.
Our lawyers in New Zealand highlight some of the essential steps that can take place during the liquidation phase:
- close down the business; this means that the company ceases its activities;
- making an inventory of the company’s assets and proceeding to sell these to obtain the funds needed to pay the creditors;
- contact the creditors and note their claims;
- as agreed with the creditors, send out reports on the manner in which the liquidation process is progressing (see below for more details);
- make other remaining payments to the creditors; these can include dividend payments, if these were not already distributed.
The liquidator issues the progress reports. These documents outline the financial position of the company on the commencement of the liquidation, and 25 days after this date. When the decision to close a company in NZ is voluntary, this report is sent earlier.
A progress report is an outline of the manner in which the liquidator intends to make the needed payments, as well as how long the payments could take. One final report is also issued at the end of the liquidation. If you need more details on how this report is filed, as well as when the first report should be issued, you can ask our attorneys in New Zealand.
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 led 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 the company to the company and if they have committed any offenses.
The funds that cannot be paid from 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.
If needed, our lawyers in New Zealand can give you more information about these issues, as included in the dedicated section of the Companies Act 1993.
The effects of winding up a company in New Zealand
All the parties involved in the company, from its shareholders to its employees, 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 if the liquidator decides that the company will cease its 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.
Indebted businesses in New Zealand
This article highlights the procedures followed in the case of a limited liability company that is in debt and can no longer sustain its activities. Because the LLC is a separate business form, it is the company that will be responsible for its debts. A case in which the founder is already liable, is if he or she has personally guaranteed for the company.
Other business types that become bankrupt are subject to different procedures. The situation that subjects the business owner to the highest level of liability is that of a sole trader in debt. If this is your case, we recommend discussing your situation with the experts at our law firm in New Zealand.
Statistics on company closures in NZ
Our team presents a dataset of recent insolvency statistics, according to the New Zealand Insolvency and Trustee Service (ITS):
- in May 2024, 74 companies declared bankruptcy;
- out of this total, 11 businesses were located in Auckland;
- there were 34 creditor applications and 40 debtor applications for bankruptcy;
- 35 companies were in liquidation during the same month.
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.