Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations Company insolvency appointments for July 2023 combined across all insolvency types have come in just under 2019 levels. Court liquidations remain a driver for these increased levels. This increase is following continued strong winding up applications driven by the IRD and its recovery efforts. As a percentage share of appointments, the figures have remained consistent from last month. Total corporate insolvency figures for the year to date continued to sit just behind 2019 figures. The slower start to the years insolvency appointments has yet to be recovered from. While court liquidations have dropped slightly as an overall percentage they still remain above their long team average so remain a large portion of…

In corporate insolvency, two common terms often arise: liquidation and receivership. For businesses facing financial distress in New Zealand, it is helpful to understand the distinctions between these two processes. To gain an understanding we explore the disparities between liquidation and receivership, shedding light on their respective implications and outcomes. Liquidation: The Dissolution of a Company Liquidation, also commonly referred to as winding up, is a formal process that leads to the dissolution of a company. It is typically employed when a company is no longer able to pay its debts and is deemed insolvent. It is also used by solvent companies that have made capital gains and seek to distribute the capital gain tax free on liquidation. The objective…

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations Company insolvency appointments for June 2023 combined across all insolvency types have beaten out all past years shown in the above graph back to 2019. Court liquidations have been a driver for these increased levels showing the highest figures since prior to 2020 with 59 appointments. This increase is following a number of months or stronger than usual winding up applications lead in part by IRD and its recent drive to collect delinquent debtors. Whether this level of court appointments will continue into the election only time will tell what IRD does, or if shareholder appointments will continue to grow due to an ongoing cost of living crisis and general price increases.…

Economic recap May 2023 saw the Reserve Bank lifting the OCR by a final 25 basis points and stepping back saying job done in the belief they have broken the back of inflation with no further raises needed at this time, they do not anticipate any drops till 2024 however when inflation has dropped back somewhat. Of note from the below graphs, you will see the raised levels of appointments compared to the prior two years and heightened winding up application levels that highlight the challenging economic climate and financial difficulties experienced by companies, necessitating closer attention to their financial stability and operational viability. This will likely continue for some time. Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations Company…

We all know it’s frustrating not being paid. What’s worse is that not getting paid affects your cash flow and chasing bad debts takes time that could otherwise be spent doing productive work. If you decide that your best option for resolving the debt is to liquidate the debtor company, the process generally takes at least three months. There are a number of milestones along the way, which are outlined below. Provided the debt is not disputed, the first step is to issue a statutory demand. The purpose of the statutory demand is to test the company’s solvency – the presumption being that, if the company is solvent and the debt is not in dispute, the company will pay the…

Rescuing Struggling Companies in New Zealand: The Power of Creditors Compromise under Part XIV of the Companies Act 1993 Introduction In the challenging business landscape, many companies in New Zealand find themselves facing financial distress and struggling to meet their obligations. Fortunately, the Companies Act 1993 offers several mechanisms to facilitate the recovery of such companies. One option available to financially troubled companies is to consider a creditors compromise under Part XIV of the Act. This article aims to shed light on the benefits of a creditors compromise and highlight its differences from the voluntary administration process. Understanding the Creditors Compromise A creditors compromise is a process that enables a financially distressed company to reach an agreement with its creditors…

Economic recap April saw the latest inflation figures released for the year to March 2023 showing a drop from the highs seen in the last two periods. The bulk of this drop in inflation however was from international factors while domestic figures remained elevated. Because of this and a number of other reasons the Reserve Bank has continued on their track whacking on a further 50 basis point rise to the OCR. We expect to see a final 25 basis points at the next meeting. Comparatively Australia has seen their OCR drop, it is expected we will not see this for some time in NZ. The percentage of mortgage lending that remains at fixed rates is considerably higher in NZ,…

In New Zealand, the liquidator of an insolvent company may have the power to claw back funds received by creditors or other parties in certain circumstances. This is known as a voidable transaction, and it can occur if: The transaction occurred within the two-year period before the company entered into liquidation, and The transaction involved the transfer of property or payment of money, and The transaction gave the creditor or party an unfair advantage over other creditors of the company. If a transaction is deemed voidable, the liquidator may be able to claw back the funds received by the creditor or party. This is intended to ensure that all creditors are treated equally and that assets are distributed fairly. Some…

The risk of not paying your company taxes to the Inland Revenue Department (IRD) in New Zealand can be significant and may include the following: Penalties and interest: If you do not pay your taxes on time, you may be subject to penalties and interest charges. These charges can quickly add up and significantly increase the amount owed. Legal action: The IRD has the power to take legal action to recover unpaid taxes. This can include issuing a statutory demand, taking court action, or placing a lien on your assets. Business closure: If a business fails to pay its taxes, the IRD may take steps to wind up the business. This can result in the forced sale of assets and…

Running a business successfully is a complex and challenging task that requires careful planning, strategic thinking, and effective management. Sometimes it can feel like you're barely keeping your head above water. One of the key challenges that business owners and managers face is ensuring that the company remains financially stable and solvent over the long term. Unfortunately, many businesses fail to recognize the warning signs of financial trouble until it's too late. One common mistake that many businesses make is overlooking warning signs or failing to address them in a timely and effective manner. For example, a company may continue to invest in an unprofitable product line or market, or delay making necessary cost-cutting measures until it's too late. In…

Economic recap Figures released in March saw the New Zealand economy gross domestic product (GDP) fall 0.6% in the last three months of 2022, after a 1.7% rise in the September 2022 quarter. The drop at the close of the year was larger than predicted by many of New Zealand banks and a number of economists. Annually, GDP is up 2.4% year on year, unemployment remains low, at 3.3%. Two large banks in the United States with significant exposure to the technology sector failed, while another entered liquidation under financial distress. These banks were Silvergate Bank, Silicon Valley Bank, and Signature Bank. Outside the United States, Credit Suisse joined the above 3 banks finding themselves in difficulty, the difference here…

Legitimate business risk is the potential risk that a business faces in pursuing its legitimate objectives. When trading a company that has cash flow problems in New Zealand, there are several legitimate business risks that investors or directors need to consider. These risks include: 1. Credit Risk: If a company is experiencing cash flow problems, it may be at risk of defaulting on its debt obligations, which could harm its credit rating and affect its ability to obtain financing in the future. 2. Operational Risk: Cash flow problems can also affect a company's ability to operate effectively, leading to disruptions in production, delivery, or customer service. This can harm the company's reputation and lead to loss of market share. 3.…