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, or downsizing your operations. A restructuring plan can help you get back on track by reducing costs and improving cash flow.

Another option is to consider a business sale. If you're unable to turn your business around on your own, selling your business to a buyer who has the resources and expertise to take it to the next level may be a good option. This can also help you avoid the stress and financial burden of continuing to operate a business that is struggling.

If restructuring or selling your business are not viable options, you may consider a formal insolvency process. This may involve liquidation or voluntary administration. A liquidation involves winding up the affairs of the business and selling its assets to pay off creditors. A voluntary administration involves appointing an administrator to manage the affairs of the business while a plan is developed to address the financial difficulties.

At McDonald Vague, we understand the challenges that come with running a struggling business. Our team of insolvency practitioners can help you navigate the process and develop a plan to get out of the situation. We can provide guidance on restructuring options, assist with the sale of your business, and provide support throughout the insolvency process.

Don't let a struggling business drag you down. Contact us today to discuss your options and find a way forward. With the right plan in place, you can get out of a struggling business and move on to better opportunities.

If your business is struggling with debt and financial difficulties, you may be considering liquidation as a way to address your problems. However, liquidation is not always the best option for every business. Before making any decisions, it's important to consider all the available options and seek professional advice from experienced insolvency practitioners like McDonald Vague.

Liquidation is a process by which a company's assets are sold to pay off debts to creditors, and the company is then dissolved. While it may seem like a quick solution to financial problems, it can have serious consequences for the company's directors, shareholders, and employees. It's important to understand the potential implications of liquidation before deciding whether it's the best option for your business.

One alternative to liquidation is a voluntary administration, which is a process that allows a company to restructure its debts and operations while continuing to trade. Voluntary administration may be a better option for a business that is experiencing temporary financial difficulties and has the potential to return to profitability with the right management and support.

Another option is a formal or informal compromise, which involves negotiating with creditors to reach a settlement on the company's debts. This can be a less expensive and less disruptive option than liquidation, and can help preserve the company's reputation and relationships with its customers and suppliers.

Ultimately, the best option for your business will depend on a variety of factors, including the nature and amount of your debts, the company's assets and liabilities, and the potential for future profitability. It's important to seek professional advice from an experienced insolvency practitioner who can help you evaluate your options and make an informed decision.

At McDonald Vague, we have the expertise and experience to help you determine the best course of action for your business. We can provide you with a clear and objective assessment of your situation, and help you explore all the available options. We can also assist you with voluntary administration, formal or informal compromises, or other alternatives to liquidation, if appropriate.

Don't wait until it's too late to seek help for your struggling business. Contact us today to discuss your options and get the expert advice you need to make the right decisions for your business.

Economic recap

Inflation has remained constant in the final quarter of 2022 at 7.2 the same as at the end of the third quarter in 2022, it is still down from the 7.3 high point seen during 2022. While economists and the Reserve Bank were hoping for a drop this factor will be weighing on the Reserve Banks mind in its ongoing fight against getting inflation back to its 1%- 3% target band. While other developed countries across the world begin to see inflation coming under control we are not yet there in New Zealand.

Coupled with the elevated inflation we have business confidence at all-time lows as seen in surveys run at the end of 2022 and through January 2023, signalling that businesses do not have high hopes for the coming year, and we are likely to see businesses struggle throughout 2023. We have seen unemployment figures rise 0.2% with the latest quarters data being released, however staffing pressures in certain industries remain. Coupled with the extended fuel levy relief through till June 23 that will likely continue to provide some relief to the cost of living crisis.

The next Official Cash Rate review is on 22 Feb 2023 where we will likely see a rise of up to 75 basis points with a number of commentators now predicting a 50 basis point rise. With up to 50% of mortgage holders coming off lower fixed rates in the next 6 months the affect of these OCR lifts continue to be felt by consumers as interest rates double and in some cases triple.

While January is normally a slow news month the change of PM has given the media something to report on along with its increase in personal and corporate insolvency reporting that has also seen an uplift over the Christmas break, particularly if the business operated in the construction sector. In an election year these failing businesses and cost of living crises will likely play a part in election promises by the various parties and how they will mitigate the fallout to the wider economy.

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

December’s figures while not as high as November, were typical for the month with less work days in the month due to the Christmas break, the levels seen however were above both the 2020 and 2021 December figures. January on the other hand has started the month with appointments in line with earlier years with no court appointments for the month and professional advisors on leave appointment figures remain low. How the recent floods across the north island remains to be seen with businesses losing substantial stock to water damage and some areas (Coromandel) blocked off to visitors due to slips tourism will likely be affected.

From a yearly point of view total appointment figures for 2022 exceeded the 2020 and 2021 appointments. While there was a slight increase in voluntary administrations in 2022 and a reduction in receiverships the bulk of the new appointments came through shareholder insolvent appointments. Court appointments for the year remained in line with prior year ratios.

Winding Up Applications

December winding up figures saw the traditional seasonal drop. January however exceeded the prior 2 years winding up applications.

December’s corporate applications have remained similar to prior year’s figures, it is the IRD applications that have picked up and continued to rise in January. While IRD has a backlog of derelict debtors how far their recovery collections will continues into 2023 as an election year is yet to be seen.

Personal Insolvencies – Bankruptcy, No Asset Procedure and Debt Repayment Orders.

Corporate appointments continue to follow prior years patterns with a slight lift, this has not been reflected in personal insolvency appointments. The numbers track down in the December month, lower than all prior Decembers with no lift in sight. The graph below shows the downwards slope over time and the continued reduction in bankruptcy figures and the increased portion No Asset Procedures have continued to make up of total personal appointments.

If you want to have a chat about any points raised or an issue you may have you can call on 0800 30 30 34 or email This email address is being protected from spambots. You need JavaScript enabled to view it..

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 company.
• Only using your power as director responsibly.
• Never putting the business at substantial risk of serious loss to the company's creditors.
• Ensuring you take care, diligence and skill that a reasonable director would take in the same circumstances.
• Making sure the company is able to pay its debts and has greater assets than liabilities.

When trading as an insolvent company, there are also important risks to keep in mind as the director.

RISKS WHEN TRADING AS AN INSOLVENT COMPANY

Liability for civil penalties

If your company is entering insolvency, you could be held liable for reckless or negligent trading. Reckless or wrongful trading is any trading that is likely to create a substantial risk of serious loss to your company's creditors. As the company's director, you are under a duty to not engage in any form of reckless trading.  The Companies Office may also pursue legal action should this occur. 

Insolvent trading can be as simple as assuring creditors that the company is in good shape, while knowing that the opposite is true. This could make you liable under the tort of deceit. To avoid reckless trading you should ensure your company is solvent and able to pay debts when they fall due (and that total debts including contingent liabilities are less than total assets).

If you claim that you did not know about the bad financial situation, however, that could be considered careless and you could be held liable for negligence.  A company director can be found personally liable for losses caused to creditors.

If you fail to disclose that your listed company is unable to pay debts to its investors, you may have a criminal charge brought against you by FMA.  A director will be criminally liable if they know that conduct in breach of directors' duties is either seriously detrimental to the interests of the company, or will result in serious loss to the company's creditors.

If directors of a listed company fail to disclose that the company is unable to pay debts to its investors, the directors may have criminal charges brought against them by FMA and/or the Serious Fraud Office under the Crimes Act 1961.

The FMA will monitor and take enforcement action where it sees conduct that could harm investors or damage the reputation of New Zealand's financial markets.

Theft by a person in a special relationship (such as a director) or deception under section 240 of the Crimes Act 1961 or acting dishonestly by taking or using a document under section 228 of the Crimes Act 1961 all carry maximum penalties of seven years imprisonment per charge.

Loss of director role

Remember that when your company enters voluntary administration or liquidation, you will lose control of management of the company.  If you have acted proactively and in the interests of the creditors and you have not defrauded the company, you will have a stronger legal defence and creditors with personal guarantees may be more willing to negotiate with you.

You will have statutory obligations, such as providing records and to attend creditor meetings and meetings with the external administrator. 

If you act promptly, you may not need a formal insolvency process and may (with the help of a turnaround professional) be able to restructure the business, compromise with creditors and continue as a director.

How to act as a director of an insolvent company

Because of personal risks, directors should take immediate action and gain professional advice on the options for their struggling businesses. There are many options available, such as ceasing to trade (which is best practice) and a sale of business, a hive down action, a company compromise or a voluntary administrator taking control. In more extreme circumstances, you may have to begin an immediate liquidation or a receivership process.  

If the company can no longer pay its debts and the likelihood of continuing to trade will increase creditor and personal exposure, take action. In addition, it's important to always be honest, act with integrity and have the best interests of the business in mind.

If you are concerned that your company is close to entering insolvency and want to reduce stress and uncertainty, get in touch with our team at McDonald Vague to discuss our business turnaround solutions.   It is important to check you have the appropriate mechanisms in place and are aware of the financial position of the company and the risks it faces.