Liquidator

An insiders view of bankruptcy and insolvency in NZ

A reader emails:

Hi Cam

I read your blog from time to time and also tend to pick up pieces you run on insolvency type issues such as the one you ran recently titled “Bankruptcy is a Joke.”

I am in my 50s and have pretty well been part of the insolvency industry in NZ since the day I walked out of Uni all those years ago. I thought I would post a few pieces to you on insolvency to explain how it works and why we have so many issues in this area. I will also proffer some solutions, one of which would save the government money, direct public insolvency resources to better use and tidy the industry up a little

In the big picture insolvency procedures are critical to a capitalist economy. The business and consumer cycle in its simplest form has birth (of a business or a consumer) their life and their death (for the consumer not their literal death but their financial death). Insolvency is the ailment that leads to death. Insolvency procedures are in place to clean up the bodies and bury them. If you don’t clean up the bodies you end up with a stinking mess. At its heart it is the realisation of the assets that are left and a sharing of the proceeds of those assets amongst the creditors pro rata.

In this piece I will discuss liquidations. I will follow up later on bankruptcy and the use of trusts. There are 3 common ways a company can be placed into liquidation. By a shareholder resolution, by its board if the constitution allows (rare) and by an application to court usually by a creditor. With shareholder and board appointments the appointers choose the liquidator and if they consent before hand they are appointed. With a court application the petitioning creditor can seek consent from a liquidator to take the appointment. If no liquidator consents to the appointment then by default it goes to the Official Assignee. The Official Assignee also appoints themselves to liquidations of companies controlled by bankrupt shareholders.

As a general rule you can have confidence in private liquidators appointed by the court. Why? These liquidators have gone in at the request of a petitioning creditor and sometimes have an indemnity for fees. They are hardly going to bite the hand that feeds them. They are also less likely to favour the shareholders or directors over the creditors. At worst they might be professionally out of their depth and miss asset realisation opportunities. In some cases despite court appointment they just don’t do their job properly. But as I say this is rare in court appointments. If you scan public notices or the Gazette the bulk of court applications and appointments are on the petition of IRD. IRD has its owns liquidators in high profile firms and some others around the more provincial areas. These liquidators are as a general rule highly experienced and do a good job.

There has been a trend over the last few years for IRD appointments to go to the Official Assignee. This can only happen if IRD’s preferred liquidators do not consent to take the liquidations or IRD does not bother to ask them for a consent to be liquidator. I suspect the preferred liquidators are picking and choosing leaving the rest to go to the Official Assignee.

By far the bulk of liquidations in NZ are voluntary appointments by shareholders. 75% of shareholders can vote to put a company into liquidation and appoint a named liquidator. If the liquidator consents to appointment then they are appointed.

Why do companies go into voluntary liquidation? Some do so because they no longer have a purpose to exist. The business has been sold or ceased, creditors have been paid (or funds are there to pay them). These are usually solvent liquidations and a tidy up. They also allow a distribution of capital back to shareholders tax free. Other reasons are that the shareholders just come to the realisation that the company is insolvent and needs to go. There is not always huge creditor pressure it is just the right thing to do. Then there are voluntary liquidations that occur because a creditor is heading towards liquidating the company. If you look at the stats in the Gazette IRD is the petitioning creditor in the bulk of liquidation applications. However, there are some other organisations that apply a zero tolerance policy to debt collection -” if you don’t pay we will liquidate you.” That sends a good clear message. Unfortunately for most day to day creditors the cost benefit of liquidating debtors does not stack up and so they leave it to others usually IRD.

A stat demand is in effect a test of insolvency. When a creditor issues a stat demand if you don’t meet the debt or dispute the debt the company is deemed to be insolvent. The next step is to apply to liquidate on the basis that the company cannot meet its debts as they fall due.

Many companies at this point go into voluntary liquidation. Why? There are a number of reasons. Dealing with a failing company is stressful. Just biting the bullet and going voluntary is a sensible option. Having a liquidator of your choice appointed at your cost can avoid the harder scrutiny of a court appointed liquidator. And, in some cases the the voluntary liquidation regime provides an avenue to spirit assets away or allow transactions that have occurred in the 2 years prior to liquidation to go unchallenged. It can also shield directors from banning orders and other remedies for creditors under the Companies Act and other legislation. ¬†¬† Read more »

Dodgy council ratbag, kicks the handicapped on the way down

This gutless council creep who was running a business badly while on full time pay of a council has bankrupted handicapped people and they have had to sell their buildings.

Nature Green was put into liquidation in July 2012 and creditors are deciding whether they can afford the $150,000 bill to sue Mr Knight and Mr Massey. Mr Petterson said he believed the creditors had a case to sue for reckless trading and trading while insolvent and were owed $1.7 million.

“What I would like to see is the liquidator put forward some hard facts and file for court action. Let’s get this sorted out once and for all instead of leaking selective emails to the media,” Mr Massey said.¬† Read more »

Cowboy Liquidators

Georgina Bond has an article at NBR about dodgy liquidators. I can tell you that from a recent investigation that the activities of numerous liquidators have come to my attention. I agree with Georgina that something needs to be done to rein in the predations of these rapacious liquidators.

The theft conviction of Nelson liquidator Pat Norris demonstrates why the laws regulating insolvency practitioners need reform, lawyers suggest.

Patrick Dean Norris, 55, is perhaps best remembered for the lurid headlines of two years ago when he made intimate recordings of his ex-wife and put Pink Batts in her underwear drawer.

Last week, the former Kawerau mayoral candidate was found guilty of theft by a person in a special relationship after a two-week, judge-alone trial at Nelson District Court.

Norris will be sentenced later this month.

The conviction relates to allegations he banked $80,900 from the liquidation of Auckland-based Astra Enterprises into the trading account of his company Norris Management Services and used the money for personal and business expenses.

The Crown said there was no evidence any creditors of Astra Enterprises had been paid.

Judge Michael Behrens QC found Norris ‚Äúengaged in a blatantly dishonest course of action‚ÄĚ ‚Ästinstructing his staff to create invoices for an amount to cover at least $80,000 after the Companies Office visited to inspect the Astra file.

Norris, who represented himself at the trial, has indicated he is likely to appeal the decision.

One lawyer I spoke to recently told me of one liquidator whose modus operandi is basically stand over where they confront directors, lawyers, accountants  essentially who ever they identify as a potential target and demand cash/assets/recompense for turning a blind eye, and failure to do so will result in them visiting the Police to lay a complaint.

 [I]t is Bell Gully’s view a person convicted of a dishonesty offence should not be permitted to act again as a liquidator of a company.

‚ÄúThis is particularly so where the dishonesty occurred in the course of a liquidation, such as here, where Norris stole funds from the company and its creditors,‚ÄĚ Mr Tingey says.

The Insolvency Practitioners Bill, before Parliament, would redress this by disqualifying any person convicted of a crime involving dishonesty from being a registered insolvency practitioner, unless the court orders otherwise.

Yet there will still be deficiencies, Mr Tingey says.

“The bill only introduces a negative licensing regime, excluding people from acting as a liquidator if they are disqualified in some way. It does not introduce a positive licensing regime, requiring minimum qualifications for an individual to act as a liquidator.

‚ÄúAs a result, it would not appear to prohibit someone such as Mr Churchill from acting as a liquidator. Indeed, it would appear to allow Mr Churchill to register and hold himself out as a registered insolvency practitioner,‚ÄĚ Mr Tingey says.

‚ÄúThe label ‚Äėregistered insolvency practitioner‚Äô implies that the practitioner meets a minimum standard of proficiency, when he or she may not be qualified at all.‚ÄĚ

The Norris case illustrates why the bill should contain a positive licensing regime, with minimum standards for individuals to be able to hold themselves out as registered insolvency practitioners, he says.

It is real wild west stuff out there. As I said I have come across numerous examples since picking the scab off the industry. There is a real rapaciousness out there and I have seen evidence where company directors with relatively small cashflow issues have been picked clean after seeking restructuring and insolvency advices from the cowboy operators.

Tomorrow all hell will break loose

Tomorrow I will be breaking a large story concerning a multi-million dollar fraud, bankrupts, lawyers, rogue directors, phoenix companies, liquidators, deception, theft, stand over, bullying, abusive correspondence, extortion, ripping off of multiple charities, missing assets, false documents, duplicate sale and purchase agreements, and “aggrieved” franchisees, private investigators, an alleged Yakuza hitman, false allegations to the SFO and a compromised Official Assignee staff member.

On top of all that I will be revealing which media personalities have had articles ghost-written by some of the players involved and the shameless involvement of lawyers and public spokespeople in manufacturing stories against other public figures.

Not to mention Current Affairs programmes who don’t return calls and refuse to look at evidence.

Who is “Sexy Boy”? And is he the same as “Pearhead”?

What was “Operation Kite”?

What was “the compromise”?

Where is the Maserati, the M5, the Ducati, the boats, the digger and the trucks?

Who is “Weeman”?

What do “McMillions” and “Lum” have against their business partner and why do they want to throw him under the bus?

This will be the flip side of everything you have ever read about this whole little nest of nasties.

I have the documents, I have the emails, I have the files and I have the hard drives and I have the databases. I will slowly but surely reveal everything and I will use as few of my own words as possible and instead use the words from the very emails of the people involved.

There is going to be hell to pay.

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