What is liquidation?
Liquidation is the process used to end a company’s life, its legal existence is at
of the liquidation bought to an end.
When do liquidations begin?
Liquidation occurs when a liquidator is appointed to the entity by those who have
authority to appoint the liquidator.
What does a liquidator do?
The liquidator’s role is to identify, take possession of and realise the assets of
liquidated company in order to maximise the return to creditors.
Sometimes this involves selling the business as a going concern, in which case the
liquidator will trade the business until the sale process is completed.
Investigating the affairs of the Company is also an obligation of the
There are two methods of entry into liquidation, voluntary or involuntary (Court
Voluntary liquidations can be divided up into a solvent liquidation and insolvent
Solvent Liquidation – Voluntary:
A solvent liquidation occurs when it is decided to appoint a liquidator and the
directors declare that their company will be able to pay all
of its debts (including taxes). A certificate of solvency is signed by the
What are the benefits of a solvent liquidation?
The significant benefits of a solvent liquidation are:
What are the risks of signing a solvency certificate?
- If capital is to be returned, it can generally be returned more quickly
compared to an insolvent liquidation; and
- Capital returned to shareholders during the course of the liquidation
be liable to income tax, however if the capital
had been returned prior to liquidation then the distribution could
result in for
income tax being payable.
Directors who sign certificates of solvency when the company is not solvent run
of prosecution and personal liability for the debts of the entity. Where any
exists, it is best to be cautious and not sign a certificate of solvency.
Insolvent Liquidation – Voluntary; When those who have the
appoint a liquidator to an entity, decide to do so
because the entity is under financial stress and can no longer pay or is
unlikely to be
able to pay its due debts.
The earlier advice is sought from Norrie & Daughters the better, other options
some good advice may be all
that is needed to avoid liquidation, however sometimes it is inevitable and is
What are the Risks of Trading Insolvently?
If an entity trades whilst it is unable to pay its debts as they fall legally
liabilities exceed assets, then the onus falls on the shareholders and directors
to take proactive action and appoint a liquidator. Failure to do can create
consequences including personal liability for the entity’s debts
and prosecution for reckless trading.
What are the Benefits of Appointing a Liquidator?
Provided the entity has not traded in a reckless manner the first benefit is
significantly reduced risk for directors and shareholders. Voluntary liquidation
will produce a better result than a court or creditor appointed liquidator and
cases Norrie & Daughters has managed to obtain a dividend for shareholders.
Are there limitations on when authorised persons can appoint a
Yes, if an application has been filed to have a liquidator appointed to your
the Court then you have 10 working days from when the application
is served on the entity to appoint a liquidator.
Court Appointed Liquidator – Involuntary: The Court can
liquidator for a number of reasons, the most common being
the inability to pay its debts. Other reasons include shareholder disputes,
false information to the registrar, no director or a
director that does not live in New Zealand or is not a director in an approved
with a law that is equivalent to the Companies Act 1993
or for any other reason the Court considers just and equitable.
A liquidator can also be appointed by creditors at a watershed meeting.
What is the bad news of having a Court appointed liquidator?
A liquidator’s role is the same, whether shareholder or Court appointed however
appointed liquidator can for a number
of reasons be more incentivised to find recoveries from directors and
can be particularly so where the
agency requesting the Court to appoint a certain liquidator is not funding the
Another consideration is your own perception of how a Court ordered liquidation
affect your professional and
possibly personal relationships compared to a voluntary liquidation.
A liquidator is appointed, often by shareholders when the company cannot pay its due
as and when due for payment (insolvent). Creditors can appoint a liquidator at a
meeting or through the court and have a court appointed liquidator take control of
Directors of the company can appoint a liquidator if the circumstances exist to do
There are restrictions on when shareholders or directors can appoint a liquidator,
to have the company put into liquidation has been made to the court then
shareholders have a
of 10 working days after service of the application on the company to do so.
The role of the liquidator involves identifying, taking possession of and realising
the assets of the liquidated company so as to maximise the return to creditors and
investigating the affairs of the Company.
There are risks in continuing to trade insolvently are significant and should not be
Professional advice should be sought if you suspect your company is close to or at
of trading insolvently.
Norrie & Daughters can provide the answers to your questions and provide a