Frequently Asked Questions
What does liquidation mean?
Liquidation is a legal state a company enters when a liquidator is appointed. It is a method for distributing the assets of a company efficiently to its creditors and shareholders in accordance with legislative priorities.
Why liquidate?
A company should be liquidated when it is unable to pay its debts, or when it is no longer required by the shareholders.
Continuing to trade whilst a company is insolvent could potentially lead to the directors or shareholders being held personally responsible.
Come and talk to us about your situation.
When can I appoint a liquidator?
If you are a shareholder, we can arrange a suitable time for the liquidators’ appointment.
If you have received an application to liquidate from the courts, then you only have 10 working days to appoint your own liquidator.
Why should I appoint a liquidator?
A liquidator has lots of discretion as to how to treat the liquidation. They must take all factors into account.
A court appointed liquidator will take a more aggressive approach investigating the affairs of the company and the directors’ conduct.
A friendly liquidator is able to have a more pragmatic approach to the whole process.
What are the liquidators’ duties?
A liquidators main duty is to ‘take possession of, protect, realise, and distribute the assets, or the proceeds of the realisation of the assets, of the company to its creditors in accordance with this Act; and if there are surplus assets remaining, to distribute them, or the proceeds of the realisation of the surplus assets in a reasonable and efficient manner’. Companies Act 1993 S253
How much does a liquidation cost?
All liquidations are different. Our fees may come from the company if there are funds available. Please come and talk to us about your situation and we will let you know what options are available.
What is the payment priority in a liquidation?
Funds are paid to creditors according to their legislative priority. This schedule can be found in Schedule 7 of the Companies Act 1993.
Generally, preferential creditors are first. This includes staff wages and IRD core amounts.
Unsecured creditors are paid from any remaining funds.
Finally shareholders receive any surplus funds after all creditors have been paid.
What is the liquidation process?
No two liquidations are the same as they all have unique circumstances. However, there is a general process which gets followed.
- The company is unable to repay its debts, or receives an application to appoint a liquidator.
- The shareholders/directors elect to place the company into liquidation. This can be by either
A resolution of more than 75% of shareholders; or
A specified event occurring in the company’s constitution; or
An order may be made by the court on the application of a creditor, director or shareholder.
- A liquidator is selected; he gives his consent and is appointed by a special resolution.
- The liquidator notifies the Companies Office of his appointment, and the status of the company.
- An advertisement is placed in a newspaper and the NZ Gazette to inform creditors and potential creditors.
- The liquidator takes over the company’s assets and documents.
- A First Report is sent to all creditors outlining the status of the company, how the liquidator will proceed and whether or not a creditors meeting shall be called.
- The liquidator will realise any assets of the company, identify the creditors and distribute available funds to creditors according to their ranking.
- Six monthly reports are sent to creditors to keep them informed of the progress of the liquidation.
- A final report is prepared when all available assets have been distributed and the liquidator has completed his duties in regards to the company.
- Notification is sent to the Companies Office and adverts placed in the NZ Gazette and a newspaper to advertise the intention to remove the company from the register.
- The company is removed from the register and ceases to exist.