The number of company liquidations are on the rise, with almost 3,000 total liquidations in New Zealand last year – up 13.5% from 2024.
If you are dealing with a company that owes you money and payment is overdue, you may be able to apply to court to put the company into liquidation.
The main duty of a liquidator is to take possession of and sell the company’s assets and distribute the proceeds to creditors “in a reasonable and efficient manner”. Liquidators also have statutory powers to obtain documents, investigate the affairs of the company and bring claims against a variety of parties for the purpose of recovering funds for the benefit of creditors.
The Companies Act 1993 provides a number of different grounds for making an application to the High Court for the appointment of a liquidator. An application may be made by a creditor or a shareholder.
Unable to pay its debts
The primary ground for a creditor to make an application is that the company is unable to pay its debts.
If you are an unpaid creditor and intend to rely on this ground, it is important firstly to establish that you have an undisputed debt. If there is a genuine dispute between you and the company about whether your invoice should be paid, you will need a ruling on that dispute first which may be through the Disputes Tribunal (for claims up to $60,000), through the courts or by any dispute resolution mechanism in your contract.
Once any dispute is settled, or if the debt is not disputed, you may demand payment by issuing a notice of statutory demand which is a special form of notice under the Companies Act. Once the statutory demand is served, the company must pay you within 15 working days. Many companies do end up making payment at this stage to avoid liquidation proceedings.
If payment is not made, the notice of statutory demand can be filed in the High Court with your liquidation application as evidence that the company is unable to pay its debts.
The company has a right to oppose liquidation if it can prove that it is able to pay its debts. The company may try to negotiate an extension of time with you if it is expecting funds in the near future.
How to apply to Court
An application to the High Court to place a company into liquidation has its own process and you will need to appoint a lawyer to act on your behalf. Once the application documents are filed in Court, the Court will allocate a hearing date. The application must be served on the company at least 15 working days before the hearing date. Before the hearing, you must prove the documents were served properly by filing an affidavit of service.
In addition, the application must be advertised at least five working days before the hearing, both in the Gazette (www.gazette.govt.nz) and a local newspaper. A copy of the advertisements and a statement of the newspapers in which they appeared must be filed with the Court.
After being served with an application, the company has 10 working days to file a statement of defence. Any other person who intends to appear – such as another creditor who has seen the advertisement – must file notice in the Court at least two working days before the hearing.
On the day of the hearing, if you are an unpaid creditor, your lawyer needs to certify to the Court that your debt remains unpaid.
If your application is successful, the court order will specify the name of the liquidator to be appointed. You can request a liquidator, or your lawyer can recommend one.
The court order will also provide for a set amount of costs to be paid to you from the company’s assets to compensate you for your legal fees.
While the process may seem complicated, it is much quicker and more cost effective than ordinary proceedings. The courts are equipped to deal with liquidation matters efficiently.
We have outlined here one pathway to the liquidation of a company. If you are considering liquidation proceedings or need debt recovery advice, our Dispute Resolution and Litigation team is happy to provide advice tailored to your situation.
