NEW ZEALAND Law and Practice Contributed by: David Weavers, Alex MacDuff, Matt Consedine and Verniel Virtucio, Russell McVeagh
Liquidation Liquidation is the process by which the assets of a company are realised and their proceeds distributed to creditors in accordance with the statutory priority under the Companies Act. It almost always results in the deregistration of the company at the end of the liq - uidation. Liquidators can be appointed to a body cor - porate (including companies and limited partnerships) by shareholders (by special resolution), the company (on the occurrence of an event in the constitution), or by various stakeholders (including the company, a director and creditors) by application to the High Court. The High Court has a supervisory jurisdiction in respect of liquidations. Pending the appointment of liquidators, it is possible for interim liquidators to be appointed to a company if the court is satisfied that it is necessary or expedient for the purpose of main - taining the value of assets owned or managed by the company (with powers limited to that purpose). Liq - uidators have powers to recover transactions that the company made prior to liquidation (see 7.6 Transac- tions Voidable Upon Insolvency ), and have investiga - tive powers and corresponding reporting obligations. Liquidation culminates in the liquidators making a dis - tribution to creditors (see 7.2 Waterfall of Payments ). Schemes of Arrangement Schemes of arrangement in New Zealand follow the same procedure as schemes of arrangement in Aus - tralia and the UK, and can be used to implement com - promises between the company and some or all of its creditors. Creditors are divided into classes based on their legal rights against the company, and the scheme will be effective if: • in respect of each class of creditors (if there is more than one), the scheme is approved by more than 50% in number of creditors representing at least 75% of the value of debt of those creditors voting in that class; and • the High Court sanctions the scheme. 7.2 Waterfall of Payments Creditors in a company’s insolvency generally rank as follows.
• From realisations of accounts receivable and inventory (excluding qualifying receivable purchas - ing programmes): (a) first, creditors with perfected PMSIs over those assets; (b) second, preferential creditors (eg, employee entitlements up to a statutory cap per em - ployee and the Inland Revenue Department for certain unpaid taxes); (c) third, other secured creditors; (d) fourth, the costs and expenses of a liquidator and voluntary administrator; and (e) fifth, unsecured creditors ranking amongst each other on a pari passu basis. • Realisations from other assets are applied as per the above but excluding preferential creditors (who are treated as general unsecured creditors out of other assets). There are various statutory and common law rules that impact the above rankings (including any equitable interests, liens or proprietary interests). 7.3 Length of Insolvency Process and Recoveries There is no standard time to complete an insolvency process. However: • receivers will retire once they have repaid their appointor’s secured debt and may retire earlier if the purpose of the receivership has been satisfied; • voluntary administration typically lasts for at least 25 working days but this can be extended by order of the High Court; and • liquidation would typically take much longer (often longer than a year) before distributions are made to creditors and the company is deregistered. Recoveries depend on various factors. It is common for the realisation value of assets to be lower than the book value of assets recorded prior to insolvency, and creditor recoveries will be diluted by the costs and expenses of the insolvency process.
181 CHAMBERS.COM
Powered by FlippingBook