Overview of the Process

During liquidation, the control of your company is passed from the Director/s to a Liquidator.

The liquidator has:

• Extensive powers to make decisions on behalf of the company for the benefit of the creditors.
• A statutory obligation under the Companies Act 1993 to realise / sell the assets of your company for the benefit of all its creditors.
• The powers to decide if the business should continue to trade, or not, in the short term.

Once your business has been placed in liquidation, the Creditors will file a claim with the liquidator.

Payments to creditors are subject to certain priorities which are laid down in the Companies Act 1993 and the Personal Property Securities Act 1999, i.e. sell all assets/stock to repay outstanding debt. Liquidation Management has an extensive network that it utilises to sell the Company’s Assets at the best possible price.

When the liquidator has finished, the company is struck off the Register of Companies and the company ceases to exist.

What are the Liquidator’s Roles and Responsibilities?

The liquidator is given total control of the assets and undertaking of the company. This control is however subject to the rights of creditors who have securities over the assets and undertaking.

The liquidator has 5 working days in which to prepare a statement of the company’s position and report to creditors. During this time the liquidator will normally decide whether to allow the company to continue to trade, or not. This decision is not made lightly, as the Liquidator becomes personally liable for any debts incurred through trading whilst the company is in liquidation.

The liquidator:

• Will take control of all assets of the company including bank accounts and request the bank to freeze the bank account and suspend all the payments and automatic payments after the appointment.
• Will either dismiss any remaining staff members, or negotiate arrangements for their continued employment by him, should the company continue to trade.
• Has powers to disclaim any contracts which he deems to be onerous. This will normally be exercised to terminate rental/lease agreements and other contracts for the provision of services.
• The Liquidator attends to the creditors’ claims and all matters pertaining to the Company.

The Decision to Continue to Trade, or Not

The Liquidator may decide to allow the company to continue to trade in liquidation for the short term if the business is viable. This is usually done to try to achieve a sale and to maintain its goodwill, staffing, and clientele.

Liquidation Management has traded several businesses in Liquidation and has a proven history of achieving successful outcomes for all creditors’

How Liquidators are Appointed

Liquidators can be appointed voluntarily by the directors (if their constitution allows it) or, as is more common, by the shareholders making a ‘special resolution’.

The High Court can also appoint liquidators on the petition of a creditor, shareholder or director. The costs associated with taking that action are preferential in the liquidation.

What Happens to the Funds When All Assets Have Been Sold?

When the assets of the company have been realised, the proceeds, after the costs of the liquidation, will be distributed to creditors in the order of priorities laid down in the Companies Act 1993.

Where assets are secured to creditors, the proceeds from those assets up to the level of the debt secured, is passed to those secured creditors, (subject to the priority provisions of the Seventh Schedule of the Companies Act).

Employees are granted priority under the Seventh Schedule, up to a designated amount, for services provided in the 4 months prior to liquidation and their holiday pay. The priority of employees is equal to that of Inland Revenue for GST and PAYE claims.

As a result, it is usual for a liquidator to hold off any distribution to other creditors until they are certain that sufficient funds have been realised to meet preferential claims from employees and Inland Revenue.

The Difference Between Solvent and Insolvent Liquidations

There are two types of standard liquidation; solvent and insolvent.

• The term Solvent Liquidation applies when there is sufficient money to pay everyone and there is a surplus back to the shareholders.
• Insolvent Liquidation is when there is insufficient money to pay everyone.

We Accept Court Appointed Liquidations

Liquidation Management accepts court appointed liquidations and we accept referrals from lawyers. This is done when a creditor files proceedings in the Court to liquidate a company for failing to satisfy their debts.