How could liquidation affect you?

Liquidation is immediate and serious.  Trading companies are usually closed down.  From the date of liquidation the liquidator takes custody and control of all the company’s unsecured assets and assists secured creditors where necessary.  The assets are collected and sold for the benefit of the company’s creditors.  When the liquidation is complete the company is struck off (removed from) the Register of Companies.

If you are an employee?

Your employer going into liquidation can have serious implications for you.  The company’s business will be dealt with by a liquidator who will need to decide how to handle the business and its assets for the benefit of the company’s creditors.

The liquidator takes an interest in assets subject to existing security interests and will contact those creditors.

Where the liquidator decides against trading, your employment will be terminated and you will be given a claim form for any salary, wages, holiday pay and/or redundancy you may be owed.  Your claim will be a debt in the liquidation.

As an employee, your claim for unpaid salary or wages and holiday pay is preferential.  This means it ranks ahead of unsecured creditors and will, where there are funds, be paid ahead of those as well as Inland Revenue’s preferential claim.

The Department of Labour and Work and Income websites also provide information for employees who are facing redundancy.

Visit the Department of Labour website now.

Visit the Work and Income (WINZ) website now.

What information do I need to provide when I file a claim?

You will need to provide evidence of amounts owed in unpaid salary, wages, holiday pay and redundancy (for example employment contract and/or a copy of the business’ wage book).  It is likely the liquidator will uplift the business records including the wage books so contact the liquidator for assistance.  If documentary evidence cannot be provided you might not be able to share in payments.

What if I need some emergency financial assistance?

Emergency financial assistance may be available from Work and Income New Zealand, your local City Mission or food bank.  WINZ can provide food vouchers to help with immediate needs for you and your family. 
 

If you are a guarantor

Guarantors are people who agree to repay a debt that another person incurred if that person defaults.  Company directors frequently guarantee debts of their company.  If the company goes into liquidation or receivership the creditor may seek to recover what is owed from the guarantor.  Professional advice should be sought.

Where the company has entered voluntary administration the creditor must await the outcome of the administration before pursuing the guarantor.  If the outcome is unsuccessful the creditor is then free to pursue the guarantor for the debt.  A Deed of Company Arrangement releases the company’s obligation to pay the debt owed but it does not affect or discharge the liability of a guarantor and the creditor can seek to enforce their personal guarantee.  Professional advice should be sought.

If you are a director?

Note | ‘Director’ includes anyone holding the position of director and any person not officially appointed but who acts in that capacity. 

Directors remain in office after the commencement of the liquidation but their powers are limited.

Directors must cooperate with the liquidator to enable the affairs of the company to be fairly and equitably resolved.  Directors may be required to provide the liquidator with information regarding the business, accounts, or affairs of the company.

If you are a creditor?

Once a company is in liquidation unsecured creditors cannot, without the permission of the Court or the liquidator, start or continue:

• any legal proceedings against the company or its property, or
• to enforce rights against any property of the company.

Secured creditors retain the ability to enforce securities where the company is in default.  Liquidation is usually treated as default allowing secured creditor to uplift and sell company assets over which they have security.

When a secured creditor sells the security, they become an unsecured creditor for any shortfall.  If there is a surplus it is payable to the liquidator for the benefit of all creditors.

What information do creditors have to provide?

Where it is possible a payment may be made to creditors.  The liquidator will ask creditors to provide details of all debts owed by the company.  A claim form must be completed by a date specified by the liquidator.

Creditors may need to provide a copy of documentation showing a debt existed at date of liquidation (for example, copies of loan agreements, bank statements, court orders, invoices, receipts and acknowledgments of debt).

Information for consumers about liquidation

The Ministry of Consumer Affairs provide some useful information and advice on some of the more typical consumer situations that can be affected by company liquidation or receivership.  For example if you have goods on layby or if you entered into a credit contract with a company that subsequently closes down or goes into liquidation or receivership.

Visit the Ministry of Consumer Affairs website now or visit a particular section of their website using these links:

Word of Advice - When businesses go bust (5 June 2007)

Consumer information - Shop closures

If you are associated with the company in some other way?

The liquidator also has significant powers in regard to other people associated with the company, including:

• Shareholders
• Promoters and people involved in the formation of the company
• Employees, past and present
• Receivers, accountants, auditors, bank officers or other people having knowledge of the affairs of the company
• Solicitors
• Other people holding company property.