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Liquidation Law

Insolvency – Company Liquidation

If your debtor company is not paying its debt as they fall due despite your requests and reminders to pay, this can materially affect your cash flow and significantly harm the growth of your business. If the debtor company is unable to pay debts owing to you and is insolvent, you have the option to commence the liquidation process.
Liquidation occurs when a company is unable to pay its debts as they fall due and the total debt exceeds the value of company’s assets. This means that the company has become insolvent. Liquidation will lead to appointment of a Liquidator who will be tasked to take appropriate steps including making the company solvent again or bringing the business to an end.
A company can be placed into liquidation by a court order or voluntary liquidation by the shareholders of a company. Companies which are liquidated will be closed down and removed from the Companies Register.

Following liquidation, the liquidator investigates the financial affairs of the company, identifies reasons for its failure and investigates any likely offences committed by the company and/or its director. They will collate relevant information of the company, ascertain unknown assets and repay creditors and shareholders from the sale of unsecured assets of the company. They have a statutory obligation under the Companies Act to realise assets, distribute funds and report criminal activities.

If you are faced with a challenging situation that may give rise to insolvency of your company, we will strategically advice you on the correct procedure and process for a practical outcome.

Statutory Demand

Statutory Demand is a common way pursuant to which liquidation proceedings are started. This mechanism allows creditors to enforce overdue payment from indebted companies. To issue a statutory demand, the following requirements must be met:
  • Debt must be more than $1000
  • No substantial dispute to the debt owing
  • Debt must fall due on or before the statutory demand is issued
  • Must be in writing and in a prescribed form
  • Must be served on the debtor company in compliance with rules of service under the Companies Act
Following service of Statutory Demand, the debtor company has 15 working days to either:
  • Pay the debt in full or
  • Enter into a compromise or compound with the creditor or
  • Give a charge over the property to the reasonable satisfaction of the creditor
At the expiry of 15 working days of service, if none of the aforesaid steps have been taken by the debtor company or if there is no application made to set aside the statutory demand, there is a rebuttable presumption that the debtor company is unable to pay its due debts. An application can be made to the High Court within 30 working days from expiry of statutory demand to liquidate the debtor company.

Issuing Statutory Demand

If you are intending to issue a Statutory Demand against a debtor company, we will assess the file and advice you on the following:

  • Whether it is clear that the debt is due or owing
  • Whether there is a substantial dispute to the debt claimed
  • Confirm whether the company owing the debt is a registered company in New Zealand
  • Check with the Companies Office whether the company is struck off, or is likely to be struck off, or have been already been placed into liquidation

Served with Statutory Demand

If you are served with a Statutory Demand, we will assess and identify grounds on which the Statutory Demand can be set aside. In this case, we will promptly assess the file and advice you on the following:
  • Whether there is a genuine and substantial dispute to the debt due or owing
  • Whether there is a counterclaim, set-off, or crossclaim
  • Whether the amount in the Statutory Demand minus the amount of the counterclaim, set-off, or crossclaim is less than the prescribed amount ($1,000) or
  • The demand ought to be set aside on other grounds such as preventing the abuse of the statutory demand process, preventing substantial injustice, where the majority creditors of the debtor company want it set aside to allow the company to trade out and resolve its problems and/or where the debt has been “sold” to a third party by the creditor that has issued the Statutory Demand.

If any of the grounds exist, we can assist you in first requesting the creditor to withdraw the statutory demand and if they refuse to do so, we will apply to the High Court to set aside the statutory demand within 10 working days of service. Strictly speaking, the application to set aside will be valid if it is filed and served within 10 working days, failing which it will not be heard by the High Court. This is a strict requirement as no time extension may be given. Time is of the essence.

The liquidation process has mandatory timeframes which are strictly applied. You must act quickly. We understand that going through a business insolvency is daunting. Contact us today to avoid disappointment. We will develop an appropriate plan of action and minimise or mitigate your potential costs. We will guide you with expertise advice.