What Does A Liquidator Actually Do?

February 24, 2017

Insolvency is when an individual, partnership or company is unable to pay its debts as they fall due; its liabilities are greater than assets.  Liquidation is one of the ways insolvent companies can be dealt with.


Liquidators are appointed either by voluntary appointment or by the High Court.  Once a liquidator has been appointed, the Company is formally “In Liquidation” and this will be noted on the Companies Register. This is a public register of all companies registered in New Zealand and can be viewed online at www.companies.govt.nz.


A voluntary appointment requires a “Special Resolution” to be signed by at least 75% of the shareholders that are entitled to vote. Alternatively, the High Court may appoint a Liquidator, upon application.  There are a number of people who may apply to the Court. However, the most common applicant is a creditor of the Company.


Once appointed, the Liquidator takes custody and control of all of the company's assets (tangible and intangible). The directors remain in office, but they cease to have powers. 


The principal duty of a Liquidator is to take possession of, protect, realise, and distribute the assets or proceeds of the realisation of the assets to its creditors in accordance with the Companies Act 1993, according to ranking (e.g. secured, preferential and unsecured creditors).  Liquidators have wide ranging powers that set out under legislation, to enable them to carry out these tasks.


Where the company’s assets are subject to a valid security interest (either by way of a general security or specific security), these assets are not automatically dealt with by the Liquidator. The security holder may choose to deal with the assets outside of the Liquidation, which they are entitled to do, or they may appoint the Liquidators to act as their agents.


With insolvent liquidations there will be a shortfall to creditors.  In the case of a solvent liquidation, the company is generally being liquidated to distribute capital profits to its shareholders, or because the shareholders wish to have the company formally removed from the company register.


Where a creditor applies to the High Court for the Liquidation of a company, the Court will require the consent of a Liquidator to act before an Order for Liquidation will be granted.  If you (or your client) is applying to liquidate a company, please call us. Provided we have no conflict to act, we would be happy to talk through the process and provide you with the necessary consent.


Our Liquidators also accept voluntary or shareholder appointments and we are happy to take referrals from other professional practices, as well as meet directly with company directors and shareholders.  We will discuss the company’s affairs with you and decide whether Liquidation is the best option for your company.  If it is, we will prepare all of the relevant documentation for you to sign.


In all appointments, our Liquidators can only agree to act if there is no conflict of interest.  We cannot act as Liquidator if we have had a continued professional dealing with the company within the two years prior to our appointment, or if there is a real or perceived conflict for other reasons.  However, we would be happy to refer you to another respected insolvency professional in this instance.

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