A summary of the implementation of amendments made to the Companies Act in September and November includes changes for overseas companies; a new requirement for liquidating a company which has been removed from the register; and the long awaited reform of the Companies Act's insolvency provisions.
On 1 September 2007, amendments to the Companies Act 1993 (the Act) came into force that:
allow the Registrar to approve the use of different forms for the purposes of Part 18 of the Act (Overseas companies obligations - use of name, change of constitution, file annual return and comply with Financial Reporting Act 1993, notification of cessation to carrying on business in New Zealand - see new section 332A); and
Liquidation not possible if company removed from register
The Companies Amendment Act 2007 came into force on 19 September. This repealed section 327 of the Companies Act 1993 which allowed, in effect, the liquidation (by order of the High Court) of assets remaining in the name of a company that had been removed from the register. Such assets were deemed to revert from Crown ownership to allow this to take place.
This means that a company will now have to be restored to the register before it can be put into liquidation and this will require an application to the Registrar under section 328 or to the High Court under section 329.
Re-vamped insolvency regime
Amendments to the Companies Act and the Companies (Voluntary Administration) Regulations 2007 came into force on 1 November 2007, resulting in the long awaited introduction of the voluntary administration regime, new phoenix company provisions, significant amendments to the voidable transaction regime and new liquidator reporting requirements. The regulations prescribe the provisions that are deemed to be included in all deeds of company arrangements (unless specifically excluded) along with a form for the administrator's six-monthly report.
Phoenix company provisions
Under the new phoenix company provisions, a person who was a director of a company placed in liquidation (because it was unable to pay its debts) is prohibited within the preceding five years from incorporating a new company under a former name or a similar name to that of the failed company. The person must have been a director within 12 months from the commencement of the liquidation. Penalties for breaching these provisions are up to five years imprisonment or a fine not exceeding $200,000.
Voluntary Administration regime
The introduction of voluntary administration (VA) will impact on those who deal with companies facing financial uncertainty, particularly financial institutions and secured creditors.
The objective of the VA scheme is to provide an alternative rehabilitative model to maximise the prospects of a company's continuing existence. If rehabilitation is not possible, it will provide an alternative to immediate liquidation where it is considered that VA will provide a better return for creditors.
In general terms, the process of VA is as follows:
Administration commences on the appointment of the administrator, who may be appointed by the board of directors, a secured creditor who has a charge over all or substantially all of the company's property, a liquidator or the courts (on application by a creditor or the Registrar of Companies).
The company's directors' powers are suspended, and the administrator controls the business, property, and affairs of the company.
A moratorium is imposed on creditors taking any action against the company, or an owner or lessor of property occupied or used by the company seeking to repossess the property, unless the creditor, owner, or lessor has commenced an enforcement action prior to the administration commencing.
A secured creditor may not enforce a charge over the company's property unless the secured creditor holds a charge over all or substantially all of the company's property and the creditor takes enforcement action within the first 10 working days of being notified of the appointment of the administrator.
Without the administrator's consent or a court order, a transaction or dealing that affects the company's property is void, a person may not commence or continue court proceedings against the company, shareholders cannot transfer any shares, and rights and liabilities of shareholders cannot be changed.
A lender may not enforce a guarantee in respect of the company's liabilities given by a director or their spouse or relative (without a court order).
A creditors' meeting must be called shortly after the commencement of the administration at which the creditors will decide whether to appoint a creditors' committee and, if so, to appoint its members and decide whether to replace the administrator.
A "Watershed Meeting" must then be called by the administrator who is required to recommend to the company whether:
a deed of company arrangement (DOCA) should be entered into (and the details of the proposed DOCA decided);
the administration be terminated; or
the company be placed into liquidation.
The creditors then vote on whether to accept the administrator's recommendation or to approve an alternative option.
If a DOCA is approved, it will bind all unsecured creditors, all secured creditors who voted for it, all owners or lessors of the property who voted for it, the company, its directors and shareholders, and the deed administrator.
If a DOCA is approved, the administrator is replaced by a deed administrator (who is often the original administrator), who then takes over the management of the company.
The administration ends when:
the time period for a Watershed Meeting expires without such a meeting taking place;
the creditors vote against a DOCA at a Watershed Meeting;
a DOCA is executed; or
The alternative options to the VA scheme remain unchanged. They include compromises with creditors, court approved arrangements, amalgamations or compromises, receivership and liquidation. The VA scheme has clear advantages for companies over these existing alternatives, although it is not known to what extent the VA scheme will be preferred in New Zealand.
For further information on the voluntary administration scheme refer to a paper presented by Bell Gully partner Murray Tingey at the Auckland District Law Society's credit law conference in Auckland on 12 November. This paper summarises the scheme and covers key factors for companies to consider before taking the Voluntary Administration route, including criteria, implications for different stakeholders, issues relating to deed of company arrangements and procedural aspects. Click here to view this paper visit
For more information on any of the cases, articles and features in Commercial Quarterly, please email Diane Graham or call her on 64 9 916 8849.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.