Image courtesy of walknboston
If you’re trying recover debts, show strength
If you are a creditor of a non-paying debtor there are many steps you can take to improve the chances of receiving payment of that debt.
However, in our experience, creditors taking a more aggressive stance are more likely to receive payment.
Where a debt is due and payable, and not subject to any genuine dispute, a creditor may issue a statutory demand to force payment. If the debtor doesn’t comply with the statutory demand, a creditor may apply to the Court for an order that the debtor be placed into liquidation. It appears though that many trade creditors are unwilling to incur this cost and look to write the debt off at this point.
However, giving up on pursuing payment is not the best course of action. Company liquidation statistics we have gathered instead reveal another strategy.
Push forward with a liquidation application
Many liquidation applications do not get advertised as they settle prior to the advertisement date. It is apparent from looking at the numbers that, most times, when liquidation applications are issued, the matter settles (usually meaning payment in full or a compromised amount is received).
We recently conducted a liquidation where the Company had several debtors that wouldn’t pay. As liquidators, we served statutory demands, and subsequently liquidation proceedings against five of these debtors.
Four of these debtors paid in full, including legal costs, and one debtor settled the amount by repaying the principal debt. A substantially better recovery was achieved because of the threat of liquidation.
The case referred to above is not unique, we are regularly asked to consent to act on liquidation proceedings where the matter settles prior to being heard in Court.
Let’s quickly review the numbers
We have conducted an analysis of the liquidation applications advertised in the New Zealand Gazette since 2011 and have observed the following:
(Please note: we have excluded applications undertaken by the Inland Revenue Department, as the IRD may choose to proceed with a liquidation to protect the integrity of the tax system.)
Liquidation Applications between 2011 and 2016 (inclusive) totalled over 7,500 with more than 4,900 of those made by the IRD. This indicates that, during that period, other creditors filed just under 2,600 applications to liquidate. But how many of those were placed into liquidation?
Court appointed liquidations in the period totalled only 5,200 and the majority of those were where the applicant creditor was the IRD.
By our calculation, over 80% of advertised liquidation applications — where the applicant is not the IRD — do not lead to liquidation. Instead, a settlement is reached.
What if the liquidation goes forward?
In the event your matter doesn’t settle and a liquidator does get appointed, you may still recover the funds through the actions of the liquidator.
Yet, you must nominate the person(s) to be appointed liquidator, who must consent to act. We recommend obtaining the consent of the prospective liquidator at the start of the process.
The costs (as awarded by the Court) of applying to liquidate the Company are preferential in a liquidation.
If you or your client is applying to liquidate a debtor, please feel free to contact Matt at mkemp@gerryrea.co.nz or 021 839 556. We are happy to discuss how we may be of assistance.