Phoenix restructures remain one of the most persistently misunderstood features of New Zealand’s insolvency framework – not least because the term itself is often used imprecisely.
The common reaction is familiar: “The company owed hundreds of thousands of dollars, went into liquidation, and then the director simply started again down the road.” I recently heard this described as a phoenix “manoeuvre”, a label that tends to imply artifice rather than process.
That framing is misleading and obscures the legal and commercial discipline the process actually requires.
Properly conducted phoenix restructures are entirely lawful. They are expressly contemplated by the Companies Act and supported by long-established case law. They are not workarounds, nor are they tolerated gaps in the system. They are a deliberate feature of an insolvency regime designed to balance creditor protection with the preservation of viable enterprise.
Improper asset transfers, undervalued transactions, or restructures used to defeat creditors fall outside that framework and are treated accordingly.
It is therefore useful to restate the mechanics.
When a company enters liquidation, its assets must be realised by the liquidator. Those assets may be acquired by any party, including a new entity controlled by the same director, even where the registered or trading name is the same or similar.
This is a regulated process. Any such transaction must be conducted through the liquidator. Substantially the whole of the business must be acquired, the consideration must reflect market value, and a successor company notice must be provided to creditors.
Critically, a phoenix restructure is only appropriate where the underlying business is viable. Reputable practitioners will not support a restructure that merely postpones failure or exposes creditors to a second insolvent liquidation. Where the numbers do not stack up, the correct outcome remains a clean wind-up.
This naturally raises the question of director conduct. Insolvency law already draws a clear distinction between business failure and misconduct. Where there has been mismanagement or certain statutory offending, the Companies Office has the ability to restrict or disqualify individuals from acting as directors. Phoenix restructures do not insulate directors from scrutiny, nor do they excuse past behaviour.
In practice, many companies with otherwise sound fundamentals fail for reasons unrelated to wrongdoing.
Common examples include:
- a prolonged economic downturn that temporarily suppresses revenue
- a discrete adverse event giving rise to a material liability, such as litigation or a major customer default
- personal circumstances that impair a director’s capacity to manage the business during a critical period
Business failure, of itself, is not misconduct. Limited liability exists to enable commercial risk-taking without exposing individuals to personal financial ruin. Insolvency law, in turn, provides a structured mechanism to deal with failure and, where possible, preserve economic value for the benefit of stakeholders.
None of this minimises the reality that unsecured creditors will often suffer losses in a liquidation, including where a phoenix restructure occurs. Insolvency law can only seek to make the best of a bad situation. In many cases, preserving a functioning business (rather than forcing its destruction) offers the best prospect of maximising recoveries and protecting ongoing employment.
The most effective insolvency work is often done before positions harden and options narrow. Early involvement can protect value, manage risk, and avoid outcomes that serve no stakeholder well.
