Solvent Liquidation

Overview of Solvent Liquidation

The term ‘solvent liquidation’ refers to the act undertaken by the shareholders of a company to voluntarily windup and close down a company. The term ‘solvent’ refers to the aspect that the business has sufficient assets, cash and/or resources to pay all outstanding creditors, liabilities, tax and interest. Furthermore, the business needs to have ceased trading to proceed into the solvent liquidation process.

In comparison, the term of ‘insolvent liquidation’ refers to the fact that the business is being placed under liquidation, most likely from a creditor seeking payment from the debtor company, and does not have sufficient funds to meet their outstanding debts and/or liabilities.

Solvent Liquidation, or voluntary winding up of a company, often occurs at the natural end point where the business no longer wishes to continue to trade. This is often due to natural course of events including key changes to circumstances of the business, the natural life of the company has ceased, or cessation of trading due to changing market conditions.

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To learn more about how to proceed with your Solvent Liquidation, please contact us. We will explain to you the process and guide you through your options.

We offer a free initial 30-minute consultation, this can be by phone, Microsoft Teams or Zoom

Step 1: Requirement to Meet the Solvency Test

The shareholders can decide to proceed into Solvent Liquidation at any point, as long as their assets can significantly cover all outstanding debts and liabilities.

To commence the Solvent Liquidation process, key steps include:

• The shareholders decides if they wish to wind up the company and proceed with the process of Solvent Liquidation.
• The Board of Directors need to determine if it needs to satisfy the NZ Solvency Test, depending on their particular circumstances.
• If there is a requirement to meet the Solvency Test, then this level of assessment needs to be undertaken. There are two parts to the test, outlined in the Companies Act 1993 section 4, and are detailed below.

Step 2: Solvency Test Assessment

• If a Solvency Test is required, the Board of Directors will (1) ensure the Company is correctly assessed, and (2) will verify these assessments to be correct.
• Note: If/when the business has successfully passed the test, and if deemed necessary, all Directors may be required to sign a Solvency Certificate. This makes them legally responsible for the financial status of the business.
• The Board of Directors decide if they wish to you an external Liquidator to assist with the winding up of the Company.
• Once the assessment of the solvency status has been determined, and if they choose to use an external Liquidator, the Shareholders (with 75% agreement) will pass a resolution to appoint a Liquidator.
• The Board of Directors will then proceed to select and appoint a Liquidator.

Companies Act 1993 | Section 4 – Solvency Test

Step 3 | Appoint A Liquidator

• Once a Liquidator has been selected, the Liquidator will confirm their appointment in writing, and this confirmation is held with the Board of Directors. The Liquidators will also inform the Companies Office of their appointment.
• Similar to an insolvent liquidation process, the Liquidator must run public advertisements in (1) the local newspaper where the business undertakes its trading and (2) in “The New Zealand Gazette”.
• The Liquidator may organise a meeting / contact all creditors, to confirm all outstanding debts that need to be paid.
• The Liquidator will then proceed to assess the business, identify all assets, liabilities, outstanding creditor payments, all tax and interest payments.
• Once all financial obligations have been determined, the Liquidator can proceed to make all necessary payments / address all liabilities, and wind up the company by distributing final surplus assets. Final payments and distributions to shareholders are part of the Companies Act section 52, Distribution to Shareholders.
• The Liquidator will complete a summary report, that will be sent to all shareholders and creditors. It will also be filed with the Companies Office.
• At the very end, the Liquidator (or Board of Directors) informs the Companies Office, and the business is removed from the Companies Office Register.

How We Can Help

With our considerable experience we can help you with all aspects of undertaking a Solvent Liquidation. With a Solvent Liquidation, there is no official process required (compared to an insolvent liquidation), however it is very important that a business, when it ceases trading, meets all its outstanding obligations.

• We can provide our expertise to correctly assess the financial status of your business and all outstanding debts and obligations.
• We can provide all financial analysis and required documentation relating to the Solvency Test.
• We can undertake all payments to creditors and any other stakeholders.
• We can complete a final set of accounts, that provide a high level of financial transparency, to demonstrate to stakeholders that your affairs have been effectively managed throughout the wind-up process.
• We can provide our expertise throughout all steps of the process and guide you on the ins and the outs of your legal requirements. Most importantly, we operate as an impartial and independent party.