There are various insolvency tests you can do to check if your company is insolvent or not. These include balance sheet (i.e. more liabilities then assets) or cashflow (debts are not paid when they are due). The main signs are that creditors are falling outside of their payment terms, IRD assessments are falling behind, no credit with suppliers, wages not being paid etc.

If the company is insolvent and you continue to trade then you run the risk of being personally liable for the debts of the company. Also when the company is insolvent it is often to hard continue to trade as you run out of working capital and can’t get trade supplies etc.

A current account is like you’re a shareholder’s overdraft with your company, you take drawings and it goes up, you put money into the company it goes down, when your accountant allocates a shareholder salary or a dividend it goes down. At liquidation often a shareholder will have an overdrawn current account which in effect is an asset of the company and the shareholder will be expected to repay this. In particular this happens when a shareholder has been taking drawings rather than wages.

In reality this can be difficult as the shareholder may have poured all of their funds into the company.

If a director has breached s386A Companies Act 1993 then they can be personally liable for the debts in the new company (in effect losing the limited liability status). If the sale of the assets of the business of the old company has been done pursuant to s386D then the director will not be liable for the debts.

Liquidation relates to a company, bankruptcy relates to an individual.

If a director has consistently not paid IRD assessments for PAYE and GST, then the IRD may look to prosecute pursuant to the Tax Administration Act 1994. PAYE deductions from wages are held in trust for the crown and the non-payment of these can be prosecuted by the IRD. This is a serious matter and in some circumstances can involve prison sentences. If you are concerned about this please discuss it with your professional advisor ASAP

Employees have a preferential position for any wages or holiday pay owed at liquidation up to $22,160 (this figure regularly increases) providing the money is not owed from longer than four months before liquidation. As soon as the liquidator has collected enough money they will look to pay staff their preferential debt.

A liquidator prepares an initial report (5 working days for voluntary liquidations, 20 working days for court appointed) and then reports on a six monthly basis during the course of the liquidation. These reports summarise the progress of the liquidation and if any distribution has been made to creditors.

The Companies Act 1993 is explicit in that if a company is insolvent and the director continues to trade the director is facing some risk. In effect if the director is trading with creditors money (i.e. amassing creditor debt which the company can’t easily repay) then they can be held personally liable for that debt.

Reckless trading is where a director is consistently trading a company while it is insolvent in effect using the company’s creditor’s money and putting them at risk of not being paid.

Pursuant to the Companies Act 1993 the director can be held personally liable for the debts of the company it they trade it recklessly.

A receiver is appointed by a General Security Agreement holder with a focus to satisfy their appointer’s debt. A receivership can be turned off once the debt has been repaid to the General Security Agreement Holder in effect handing the company back to the director. Receivers duties and powers are defined by the Receivership Act 1993.

After seeking professional advice often, the best course will be to liquidate the company. The liquidator then ensures that the balance of funds are allocated in the correct manner.

If you have personally guaranteed company debts then the creditor will expect you to pay the debts you have guaranteed. Lots of people forget about signing these when the open the trade accounts and are surprised when a liquidation or a receivership commences. In addition, often leases and high purchase agreements include personal guarantees, meaning the director / shareholder could face sizable liability after liquidation..

Always a difficult question as sometimes it can take some time to resolve matters and the timeframe will vary on each project. Seldom would a liquidation take less than six months and it is often completed within twelve months.

Once a liquidator has realised the assets of the company, and this can often take some time, they will then look to disburse pursuant to Schedule 7 of the Companies Act. In effect this is liquidator’s fees, then preferential staff, IRD core assessments, secured creditors (who have not been satisfied with direct secured assets), then unsecured creditors equally.

A statutory demand is a demand for payment of an overdue debt. The debtor has 10 days to dispute the debt, or 15 days to settle it. If not settled after the 15 days the creditor can petition the courts to have the company placed into liquidation. The creditor effectively has one month from the expiration of the statutory demand to petition the courts.

A shareholder can place a company in voluntary liquidation during a statutory demand process but once the company has received issued of proceedings for placing the company into liquidation they can’t.