Bankruptcy

What is it?

Bankruptcy applies to an individual debtor who is unable to pay their debts.

How does it work?

• A government official, (the Official Assignee) is appointed to distribute the bankrupt’s assets to their creditors.
• The bankrupt retains limited personal belongings and tools of trade and a limited allowance for the bankrupt and his or her family to live on.
• There is a “fresh start” policy which provides that, in most cases, after three years a bankrupt will be discharged from the debts in the bankruptcy.  Those debts can no longer be enforced.

Liquidation

What is it?

Liquidation was formerly known as “winding up”. This applies to companies registered under the Companies Act 1993, rather than individuals.  It can be voluntary or compulsory.  The main reason a company will face compulsory liquidation is if it is unable to pay its debts.

How does it work?

• A liquidator (normally an accountant) is appointed.
• The main purpose of liquidation is to collect the assets of the company and distribute the proceeds to creditors and shareholders.
• Usually a company is liquidated because it is insolvent or because the shareholders want to cease trading.
• Although the liquidator has control of the assets, the company retains ownership of them, but holds the assets on trust for the creditors.
• Once a company is liquidated, it is removed the Companies Register.
• Liquidation is completed when the liquidator files documents with the Companies Register.

Receivership

What is it?

Receivership is where a Receiver is appointed to realise the assets or manage the business of a company for the benefit of the secured creditors.

How does it work?

• A Receiver is appointed by the Court or under a Deed or Agreement.  Receivers must have certain qualifications.
• A Receiver has specific powers which include the right to:
  • Demand and recover income of the property in receivership;
  • Issue receipts for the income recovered;
  • Manage, insure, repair and maintain the property in receivership;
  • Inspect any books or documents relating to the property.
• Receivership differs from liquidation as the assets are realised for the benefit of the one secured creditor who made the appointment of a Receiver whereas in a Liquidation the assets are realised for the benefit of all creditors in order of priority (secured creditors, employees and IRD get their money before others).