Liquidation can be complex and daunting, especially when financial stress is already a burden. Understanding how these costs are handled is essential for creditors and business owners looking to manage their resources and responsibilities wisely during liquidation.
Who Settles Liquidator Fees?
In New Zealand, liquidator fees and expenses generally come from company assets undergoing liquidation.
When a company enters liquidation, the liquidator’s primary duty is to gather company assets, sell them if necessary, and distribute the proceeds in a specific order of priority, as set out by New Zealand’s Companies Act. This is to ensure that creditors receive whatever compensation is possible based on the value of the company’s remaining assets.
Here’s how the payment structure typically unfolds:
1. Company’s Assets as the Primary Payment Source
Once appointed, a liquidator gains control over the company’s assets. Their initial task is to assess the value of these assets to cover not only the liquidation process but also any outstanding liabilities. The liquidator’s fees, therefore, typically come from the proceeds of asset sales before any distributions to unsecured creditors.
2. Secured Creditors and Their Role
If secured creditors hold a charge over some or all of the company’s assets, they have priority in receiving payment. These creditors might include banks or other financial institutions with a secured interest.
However, even if the secured creditors are paid first, the liquidator’s fees usually fall under a “super-priority” rule in New Zealand, meaning that they will often be settled before unsecured creditors receive anything.
3. Insolvent Companies with Insufficient Assets
If a company has insufficient assets to cover liquidation fees, the situation becomes more challenging. In these cases, liquidators may rely on “third-party indemnities” or “security for costs,” where shareholders, creditors, or directors may be required to cover expenses that the liquidation itself cannot fund.
Some liquidators might not take on cases with limited assets unless there is a guarantee of funding, which can be obtained through indemnities provided by stakeholders who wish to proceed with the liquidation.
Additional Considerations Regarding Liquidator Fees for Businesses
In New Zealand, where the business climate is vibrant yet highly competitive, many companies experience unique financial pressures which sometimes result in insolvency. Liquidators in this region understand these pressures and often provide preliminary consultations to discuss fee structures based on a company’s specific financial situation.
Here’s what businesses should know:
Legal Obligations and Court-Ordered Liquidations
There are cases where liquidations are court-ordered due to disputes or debt issues with creditors.
A court-ordered liquidation typically means that creditors initiated the process. When this occurs, the liquidator’s fees might still come from company assets, but if there aren’t enough, the creditors who sought liquidation may be expected to contribute towards fees.
The Role of the New Zealand Companies Office
In cases where no assets exist and stakeholders cannot pay, the New Zealand Companies Office may intervene. While the Companies Office does not directly pay for liquidations, they oversee liquidation standards and may take on cases in extreme situations, particularly where misconduct is suspected.
However, such interventions are rare and typically involve regulatory rather than financial assistance.
Impact of Liquidation Type on Costs
The costs associated with a solvent versus insolvent liquidation vary significantly. Solvent liquidations, often known as Members’ Voluntary Liquidations (MVLs), occur when a company can still meet its financial obligations.
Business owners who initiate an MVL to restructure or retire a business often bear the liquidator’s fees directly, as these fees don’t come from company assets but are treated as a business expense.
Insolve’s Expertise in Managing Liquidation Costs
Liquidation is a structured and intricate process, requiring the expertise of experienced professionals. Liquidators play a key role in ensuring fairness, transparency, and the proper distribution of assets to creditors.
Insolve offers comprehensive liquidation services, with expertise in creditor-voluntary liquidations and court-mandated processes. Our skilled team ensures that each case is handled efficiently and professionally, focusing on transparency and fairness. We help creditors and business owners navigate the complexities of liquidation, offering clear guidance on recovering what they’re due.If you’re facing liquidation or need help navigating the complexities of insolvency, contact Insolve’s expert liquidators. We’re here to guide you through every step of the process and ensure a fair, transparent outcome that aligns with New Zealand Law.
