Liquidation usually occurs when a company becomes insolvent, which means it is unable to pay its debts when they are due or if its debts exceed its assets. A liquidator is then appointed to take the appropriate steps to either re-organise the affairs of the company or wind it down effectively and in accordance with NZ insolvency law.
Process
There are multiple ways that a company can be placed into liquidation. In most cases, the shareholders will elect to voluntarily appoint a liquidator if the company is in distress and is unable to meet its obligations.
A resolution that appoints a liquidator is normally a special shareholder resolution requiring 75% of the shareholders to sign, depending on the company constitution (if it has one).
In most cases, a board resolution is not enough to place a company into liquidation, unless the company’s constitution allows the board to do this.
Another way a company can be placed into liquidation is by the Court following service of a statutory demand and application to liquidate made by a creditor.
Once appointed, the liquidator will:
- Make a rapid assessment of the company if it is still trading
- Investigate the affairs of the company
- Secure the company records and information
- Take charge of the company assets
- Realise the assets of the company
- Distribute the assets in a priority according to law
- Report any serious problems to MBIE
- Report on progress 6 monthly to the creditors and shareholders
The role and duties of liquidators are the same, regardless of whether they are appointed voluntarily by the shareholders or by the Court.