Companies Act 1993
Company liquidation in New Zealand
Liquidation is the formal process of winding a company up, realising its assets and distributing the proceeds to creditors in order of priority. We guide directors, shareholders and creditors through each type of liquidation, calmly and to the standard the law requires.
What liquidation is, and what a liquidator does
Liquidation brings a company's affairs to an orderly end. An independent liquidator is appointed and the directors' powers to manage the company largely come to an end. From that point, the liquidator stands in control of the company and carries out a defined set of duties under the Companies Act 1993.
In broad terms, a liquidator will:
- take control of the company, its assets and its records;
- realise the assets, meaning collect debts owed to the company and sell its property for value;
- investigate the company's affairs, including how it came to fail and whether there are any recoveries to pursue;
- distribute the funds available to creditors in the order of priority set by law;
- report to creditors and to the Registrar of Companies on the progress and outcome of the liquidation; and
- complete the liquidation and remove the company from the register.
A liquidator owes duties to the creditors of the company as a whole, rather than to any single creditor, director or shareholder. The role is to act independently, to follow the priorities set by the Companies Act 1993, and to treat creditors fairly within their classes.
How a company is put into liquidation
Under the Companies Act 1993 there are four ways a company can be placed into liquidation. In practice, two account for the great majority of appointments; the other two arise only in narrower circumstances.
Shareholders' special resolution
Most commonThe most common route. The shareholders resolve, by special resolution, to put the company into liquidation and appoint a liquidator. This is typically used where the directors and shareholders have decided, responsibly and in good time, that the company can no longer continue.
Court order
The second most common route. The High Court can order that a company be put into liquidation on an application under section 241(2)(c) of the Companies Act 1993, most often by a creditor after a statutory demand has gone unpaid. A director, a shareholder, the company itself, the Registrar of Companies or the Financial Markets Authority can also apply in the right circumstances. Where the court makes an order, it appoints the liquidator.
Creditors' resolution at the watershed meeting
Where a company is already in voluntary administration, the creditors can resolve, at the watershed meeting, to put the company into liquidation and appoint a liquidator, rather than approve a Deed of Company Arrangement or return control to the directors. This route arises only within a voluntary administration and does not involve a court order.
Board resolution
Rare in practice. Section 241(2)(b) allows the directors to resolve to put the company into liquidation, but only where the company's constitution expressly permits this on the occurrence of a specified event. As most New Zealand companies have no constitution, or a constitution that does not include such a provision, this route is uncommon.
Whichever route is taken, an independent liquidator is appointed, and the same statutory duties and priorities under the Companies Act 1993 apply from that point.
The liquidation process, step by step
Every liquidation is different, but most follow a recognisable sequence. The steps below describe the path in general terms.
Appointment
A liquidator is appointed by the shareholders, the creditors or the court, and formally takes office. Notice of the appointment is given as the law requires.
Secure and assess the assets
The liquidator takes control of the company's assets and records, identifies what the company owns and owes, and protects the position pending realisation.
Investigate the company's affairs and any recoveries
The liquidator examines how the company was run and whether there are claims or transactions that may be recoverable for the benefit of creditors.
Realise the assets
Debts owed to the company are collected and its property is sold for value, with the aim of maximising the funds available to creditors.
Report to creditors and the Registrar
The liquidator reports on the progress and conduct of the liquidation to creditors and to the Registrar of Companies at the intervals required.
Distribute the funds
Once costs are met, the funds available are distributed to creditors in the order of priority set by the Companies Act 1993.
Complete and deregister
When the work is finished, the liquidator completes the liquidation, files a final report and the company is removed from the register.
What is expected of directors
When a liquidator is appointed, control of the company passes to the liquidator and the directors can no longer manage it. The directors are not automatically removed from office, but their powers largely cease.
Directors are expected to co-operate with the liquidator. In practice this means handing over the company's books and records, providing information about its affairs and assets, and assisting with reasonable requests. Because the liquidator must investigate how the company came to fail, that investigation can include a review of the directors' conduct and of transactions that may be recoverable for creditors. Co-operating fully and promptly is both a legal expectation and, in our experience, the approach that serves a director best.
Throughout, the liquidator's overriding duty is to the creditors of the company as a whole, and to conduct the liquidation properly and in accordance with the law.
When to consider liquidation, and why early advice helps
Directors should consider liquidation, and take advice, when a company is insolvent or is heading that way: when it cannot pay its debts as they fall due, when creditors are pressing or a statutory demand has been received, or when continuing to trade would only deepen the loss to creditors. Creditors may consider it where a company that owes them money will not engage or cannot pay.
Liquidation is not always the only answer. Depending on the circumstances, a voluntary administration, a creditors compromise or early business recovery and turnaround advice may be more appropriate. The earlier advice is taken, the wider the range of options that remain genuinely open. A short, confidential conversation will help you understand where things stand and what paths are available.
Common questions about liquidation
What is the difference between liquidation, receivership and voluntary administration?
They are three different processes under New Zealand law. Liquidation winds a company up: a liquidator takes control, realises the assets, distributes funds to creditors in order of priority and removes the company from the register. Receivership is narrower. A receiver is usually appointed by a secured creditor to take control of and realise the particular assets that secure that creditor's debt, rather than to wind up the whole company. Voluntary administration, under Part 15A of the Companies Act 1993, is a temporary process that gives a company breathing space while an administrator assesses whether it, or its business, can be saved, often through a Deed of Company Arrangement. A company can move from one process to another, so it is worth taking advice on which is appropriate before any step is taken.
How is a company put into liquidation in New Zealand?
There are four routes under the Companies Act 1993, though two account for the great majority of liquidations. Most commonly, the shareholders resolve to liquidate the company by special resolution. The next most common route is a court order, usually made on the application of a creditor after an unpaid statutory demand, though other parties, including a director, a shareholder, the company itself, the Registrar or the FMA, can also apply. Less commonly, where a company is already in voluntary administration, the creditors can resolve at the watershed meeting to appoint a liquidator without any court order. Rarest of all, the directors can resolve to liquidate the company under a specific power in the company's constitution, though few companies have a constitution that permits this. In every case, an independent liquidator is appointed to take control of the company and carry out the liquidation.
What happens to directors in a liquidation?
When a liquidator is appointed, the directors' powers largely cease and control of the company passes to the liquidator. The directors are not automatically removed from office, but they can no longer manage the company. They are required to co-operate with the liquidator: handing over the company's books and records, providing information about its affairs and assisting with reasonable requests. The liquidator must investigate the company's affairs, which can include reviewing the conduct of the directors and any transactions that may be recoverable. Acting early and co-operating fully generally puts a director in the best position.
How long does a liquidation take?
Timeframes vary considerably and cannot be guaranteed. A small company with few assets and straightforward affairs may be completed relatively quickly, while a company with complex assets, disputed claims, litigation or recoveries to pursue can take much longer. The liquidator reports to creditors and the Registrar of Companies during the process and works to complete it as efficiently as the circumstances allow. We can give you a realistic sense of likely timing once we understand the company's situation.
Who pays the liquidator's fees?
In an insolvent liquidation, the liquidator's remuneration is paid from the company's assets, in accordance with the Companies Act 1993, and is disclosed in the liquidator's statutory reports. It is not paid by the director personally, unless the director has given a personal guarantee or agreed separately to contribute. The first consultation with us is free.
Talk to us in confidence
A short, no-obligation conversation is often the most useful first step. We will tell you honestly whether we can help.