We have recently gone through the end of another financial year, and we now turn our minds to looking forward and where to from here. As part of this process, it is worthwhile looking at your business’s structure and whether it needs a ‘spring clean’. It is surprising how often companies are set up for specific purposes, but later when there is no longer a need for that company, nothing is done and it just hangs around.
There are basically three options to ‘kill’ a solvent New Zealand company:
- ‘short-form removal’ from the companies register,
- ‘solvent liquidation’, or
- do nothing, i.e. don’t file the annual return with the Companies Office.
The third option is included for completeness, but it is not generally recommended. The first two are discussed below.
A short-form removal request can be completed online at www.business.govt.nz/companies by providing:
- A shareholder or director resolution providing for the company to be written off because:
- it has ceased trading, its debts have been paid and its assets have been distributed (in accordance with the Companies Act 1993 and the company constitution), or
- it has no assets and no creditor is seeking to liquidate the company.
- Written notice from the IRD stating that the Commissioner has no objection to the company being removed from the register (once the final tax return(s) and a business cessation form has been lodged).
The Registrar of Companies will then publish a public notice of the intention to remove the company from the register (in the New Zealand Gazette and another newspaper). Once a 20 day notice period has expired the Registrar will remove the company from the register if no objections are received.
A liquidator is appointed by shareholder resolution. The liquidator then consents to the appointment and gives notice of it to the Companies Office. The directors must pass a resolution as to the solvency of the company and file it with the Companies Office within 20 working days of appointing the liquidators.
A notice of appointment and notice to creditors to claim (minimum 10 working days’ notice) is published in the New Zealand Gazette and one other newspaper. The liquidators’ first statutory report is filed at the Companies Office with copies to the shareholders and any creditors.
When the notice period for creditors to claim has expired and assets distributed and liabilities discharged, the liquidation is completed by the filing of the liquidators’ final statutory report at the Companies Office, with copies to shareholders and all known creditors.
A final public notice of intention to remove the company from the register is published in the New Zealand Gazette and one other newspaper (minimum 20 working days’ notice for objections to the removal). Provided that no objections have been received, the company is removed from the register at the expiry of the period of notice.
As illustrated, there are different processes and benefits under each method. Generally, the short-form removal process is best suited to a company that has one or more of the following features – has little trading history, has held few assets, is subject to low commercial risk, and no contingent liabilities.
A solvent liquidation involves slightly more paperwork and generally costs more than a short-form removal. However, if the most important consideration is to minimize the risk of the company being reinstated through creditor claims after the company is struck off from the register, then the best option will be to complete a ‘solvent liquidation’.