Voluntary administration

Significant developments have been made in corporate insolvency law in New Zealand with the introduction of the voluntary administration (VA) scheme on 1 November.

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.

• While a DOCA is in force, no person bound by it may seek to liquidate the company, issue or continue court proceedings against the company or commence or continue enforcement action against company assets.

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 court orders otherwise.

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.

Enquiries and information

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