Hundreds of companies submit debtor applications to the government of New Zealand every year, which goes to show that starting a business comes with its fair share of risks and success is not always possible. But if you don’t have any experience with liquidation and bankruptcy, the failure is going to hit you harder.
You may also now know what the process of liquidation involves and whether you can get any help with it or not.
What Is Process Of Liquidation?
When a company can’t pay its debts, the only solution left is to sell its unsecured assets to repay the creditors. The process is known as liquidation and is handled by a qualified liquidator. The liquidator investigates the finances of the company and arranges the sale of the assets for repaying the creditors.
There are different types of liquidation, depending on the people who initiated it. The three parties that can put a company into liquidation are:
- Shareholders
- Creditors
- Board of directors
Most commonly, it is the creditors that put a company into liquidation by submitting an application to the High Court and hiring a liquidator.
Types Of Creditors
There are two types of creditors that are relevant to the liquidation process: secured and unsecured creditors.
Secured Creditors
Secured creditors are the ones who have security over the debtor’s assets, which they can sell in case the latter fails to complete their payments. They have the right to repossess the debtor’s property, and it is up to them to decide whether they want to sell it or not.
Unsecured Creditors
Unsecured creditors cannot legally repossess a property of the debtor or sell it when the debtor falls behind on payment. The only situation where an unsecured creditor gets paid is if the debtor goes into involuntary closure.
What Is The Process Of Liquidation?
Creditors often turn to a liquidator to get help with the process of liquidation as they are not qualified to handle the investigation of financial issues. The process of liquidation begins when a creditor sends a warning to the debtor. It is also known as the statutory demand process.
If the creditor is unsatisfied with the services of the liquidator, they can turn to the High Court for help. The creditor files an application with the High Court to get the liquidation order. Once the court processes the application, it will issue the liquidation order and ask the authorities to put the assets of the debtors on sale.
The first step of selling the assets is putting advertisements in newspapers. However, it is essential for the solicitor to make sure that the debt is due before putting the assets on sale for paying off creditors.
In most cases, the liquidation process gets handled outside of court by liquidators. But it depends on the experience level of the accountancy firm. If they don’t keep the interests of the client in mind when selling assets, they can make mistakes.
Do Employees Get Paid After Process Of Liquidation?
Once the liquidation process is completed, secured creditors are the first ones to get paid. After them, it is the turn of the employees of a company. The salaries of the employees are cleared from the money obtained by the sale of the assets of the company.
Employees can claim up to a certain amount of money once the company is liquidated. But the amount they receive will depend on the remaining funds after clearing off the debt of creditors.
If any money is left after paying the employees, it is used to pay unsecured creditors. However, most of the time, there is little to nothing left once secured creditors and employees are paid after the liquidation.
Is There A Way To Avoid Process Of Liquidation?
When financial difficulties for a company keep on increasing, they will begin to fall behind on their payments. However, if they go for voluntary administration, they can avoid liquidation and find a solution for their financial issues.
The process of voluntary administration (VA) begins when the board of directors of a company appoint an independent administrator. The job of the administrator is to manage the affairs of the company in a way that would result in the best possible outcome. The administrator can achieve an outcome that would benefit the business and save the company from liquidation.
Voluntary administration is a legal process to save companies in financial distress. However, the success of the process relies heavily on the independent administrator. If the administrator has the right experience and qualification, only then they will be able to save a company from financial ruin.
Benefits Of Hiring An Accountancy Firm
If your company is facing financial issues, there’s often only two solutions: liquidation and voluntary administration. But you may be unable to figure out what’s the right step to take for the future of your company, which is why you will need advice from an accountancy firm.
Financial Solution
An accountancy firm will investigate your debts and analyze your assets to come up with the right solution. They will find a financial solution that not only saves your company from liquidation but also makes it possible for you to pay off your debts.
If you have mounting unpaid debts, then liquidation may be the only way out for you. But even then, an accountancy firm will make sure that your assets are priced correctly so you can benefit from the sale. If you get the help of an experienced firm, you will be able to pay both your creditors and your employees.
The Right Advice
If you are not certain what step to take for the financial improvement of your company’s situation, an accountancy firm that offers insolvency services can guide you in the right direction. They will go over the details of your debts and figure out whether you should go for liquidation or voluntary administration.
Assistance with Liquidation
If liquidation is the necessary step, the accountancy firm will help you with it by advertising your assets and finding the best prices. They will also help you pay off your debts after the sale of your assets by going over the paperwork. This step is necessary to make sure that you pay the exact amount to each creditor.
Tips for Finding the Right Accountancy Firm?
Although most of the time liquidators work with creditors, it doesn’t mean that they don’t care about the interest of the company. However, you will have to do your research to find an accountancy firm that can help you get through liquidation or voluntary administration in the best way possible.
Check Experience Level
The experience of the accountancy firm you are hiring is also very important. They may have business graduates on their team, but if they have never dealt with liquidation and VA before, they won’t be able to help you. When you get in touch with a firm, you must ask them about the companies they have helped in the past to be certain of their experience level.
When you are going through the portfolio of an accountancy firm, be sure to check if they have helped businesses survive in the past or not. It will help you in finding a firm that is on the side of the companies instead of creditors.
Look for Specialists
In order to get through financial issues, you must find an accountancy firm that has liquidation and voluntary administration specialists on their team. If they have helped other companies in New Zealand with liquidation and VA, then you can count on them to get your company out of financial problems as well.
Hire Liquidators with the Right Legal Knowledge
Both liquidation and voluntary administration are legal processes, but as a businessperson, you may not be familiar with the relevant laws. There are also legal obligations that your company must meet during these processes or you will be in violation of the law. Since you are not familiar with these legal obligations, you will have to get help from an accountancy firm.
An accountancy firm must be familiar with the laws in New Zealand regarding liquidation and VA. The firm can also help your company regarding offences, if applicable, only if they have the necessary legal knowledge.
See How the Firm Deals with You
It may seem like an obvious tip, but it is something that companies often end up ignoring. When you get in touch with an accountancy firm, the question they ask you can tell you a lot about them. The firm should ask about the needs of your company so they can provide you with the best possible solution. They should not be quick to suggest a solution without investigating the financial problems of your company.
The liquidator should also offer you complete confidentiality. They must protect all the important information regarding your company’s financial issues and the sale of your assets.
Business of All Sizes
An accountancy firm that has experience in handling liquidation and VA for businesses of all sizes is more likely to help your company as well regardless of the volume of your business.
I think now it is clear to you what ids Process Of Liquidation?
When you find the right firm, you can not only pay off your creditors but also make sure that your employees are taken care of. So, take your time and find the best accountancy firm when your company is struggling because of financial problems.
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