What are the reasons that can be given for a debtor not complying with a statutory demand? What are the defences? Can they avoid liquidation at a High Court winding up proceeding? Section 289 of the Companies Act 1993 enables a creditor to issue a statutory demand to a company for a debt that is both due and payable. Issuing such a demand is a significant step that warrants careful consideration. If the indebted company fails to comply with the statutory demand within 15 working days, it is assumed to be insolvent. Consequently, the creditor may apply to the court to initiate the process of liquidating the company, which entails engaging a lawyer to serve a notice for winding up…

Accepting an informal instalment arrangement for a debt that is owing to you instead of being paid on trade terms is not obligatory, giving you the discretion to evaluate the situation before making a decision. However, it's crucial to assess both the potential advantages and the associated risks. If a debt is owing and not being paid there are common courses of action such as negotiating an agreeable solution and instalment plan, issuing a statutory demand, enforcing a judgment, engaging a debt collection agent, mediation, caveats (where there is a caveatable interest), lodging a report with credit agencies etc. There are benefits and risks to most options. We discuss the informal arrangements here. Risks of Accepting an informal Instalment Arrangement:…

Running a business is a rewarding venture, but it also comes with its fair share of challenges. One of the most critical challenges a business can face is the threat of insolvency. Insolvency refers to a situation where a company is unable to meet its financial obligations and pay off its debts when they become due. If left unaddressed, insolvency can lead to the collapse of the business, affecting not only the company's owners and employees but also suppliers, creditors, and other stakeholders. We discuss some key warning signs that indicate when a business is in serious danger of insolvency and what actions can be taken to address the situation. Key Warning Signs indicating a serious danger of Insolvency 1.…

Navigating Financial Difficulty: Essential Steps for Companies in Crisis Business is unpredictable. Even the most successful companies may find themselves facing financial difficulty at some point. Whether due to economic downturns, industry disruptions, or internal challenges, financial distress requires prompt and strategic action. In this article, we will explore the steps a company should take when encountering financial difficulty, encompassing a review of the big picture, operations, cost-cutting measures, tax management, and cash flow. Additionally, we will discuss the concept of company compromise (Part XIV of the Companies Act 1993) as a means to protect a viable business. 1. Review of the Big Picture: When a company encounters financial difficulty, it is essential to step back and take a comprehensive…

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…

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…

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.…

If you're running a struggling business, you may feel overwhelmed and unsure of what steps to take next. It's a tough situation, but it's not uncommon, and there are options available to help you get out of it. The first step is to assess the situation and identify the root causes of your business's struggles. This may involve reviewing your financial statements, identifying your cash flow issues, and analyzing your operations to pinpoint areas of inefficiency or waste. Once you have a clear understanding of the problems, you can begin to develop a plan to address them. One option for getting out of a struggling business is to consider restructuring. This may involve renegotiating your debts with creditors, selling assets,…

Dealing with insolvency is a stressful process. As a director, you have to worry about risk on multiple fronts: corporate survivability, personal liability and how to satisfy the needs of creditors. But perhaps above all, it is critical to ensure your company does not continue to trade if it becomes insolvent. RESPONSIBILITIES OF THE DIRECTOR DURING INSOLVENCY As director, you must ensure that you and your company uphold the provisions and obligations of the Companies Act 1993. The duty imposed by Section 135 of the Act is owed by the directors to the company. The legislation states that minimum requirements for a director to do so adequately include: Making decisions in good faith and for the best interests of the…

OPTIONS FOR STRUGGLING NZ BUSINESSES If your business is at the point of spiralling out of control, speak to your professional advisors who may be able to help your business. The pressures now on business are high and it is difficult. There are options for struggling businesses to consider whether that be to restructure or to bring the business to its end. There are three rescue procedures in NZ, the compromise (Part 14), the Court approved scheme of arrangement (Part 15) – an option seldom used, and Voluntary Administration (Part 15A). The Rescue Procedures Receivership can be a rescue procedure. It can result in the rescue of viable parts/businesses but the primary duty of a Receiver is to get the…

How confident are you of your business's financial health? More importantly, what is the data that you've used to arrive at this conclusion? If the answer to these questions is that you 'think' your business is in trouble because your gut tells you it is, then you're probably right. A gut feeling however, may not tell you how much trouble your business is in, which is important. Measuring financial distress is helpful as the potential solutions available for companies in distress can change depending on the severity of the problems, and it is beneficial for all parties that problems are dealt with before the impact on creditors is made worse. Instead, what you should be using is a tried and…