Are your creditors on your tail and you don’t know where to turn?

Are your creditors on your tail and you don’t know where to turn?

Don’t bury your head in the sand – we are here to help you.

Whether you are an individual or a company owing money to creditors, it can often be a struggle to pay those debts when due and there is no time more difficult than the present.

If you do not act, your creditors will not go away.  Creditors are not tolerant when their demands are ignored and chances are your creditors will make an application to the High Court to either have you, as an individual adjudicated bankrupt or have your company placed into liquidation.  An official assignee (in the case of a bankruptcy) and liquidator (in the case of a company) is then appointed and will seize your personal/company assets in order to satisfy the debt owing to creditors.

However, it does not need to go that way.  Communication is key.  Creditors never know what may be recovered when proceeding down the path of bankruptcy or liquidation and there is often a possibility that they will accept a reduced amount to settle the debt.

The way to move ahead is to speak with us about putting together a Creditor’s Compromise.  A Creditor’s Compromise is a formal offer put to your creditors when you or your company is unable to pay those creditor’s invoices.  We will sit down with you and work through who your creditors are and what is owing to whom.  Once we know what we are dealing with, an achievable compromise can then be put to your creditors for approval.

The compromise may be by way of a oneoff lump sum payment, or terms may be agreed upon where you make payments over a period of time.

Either way, if the Creditor’s Compromise is accepted, this gives you the ability, as an individual to continue on with life as normal with none of the restrictions which come with being made bankrupt, and as a company the ability to continue trading, and for both to pay off those creditors without being adjudicated bankrupt or placed into liquidation.

A Creditor’s Compromise may continue to enable you to keep control of your own and company assets. It may be that you need to sell an asset in order to satisfy a debt or debts, but isn’t this better than assets being sold out from under you and your company no longer being able to trade?

The liquidation process, in particular, is a very public affair.  Prior to any liquidation hearing, the details of the liquidation hearing are advertised in a newspaper local to where your company has its registered office as well as notice being posted in the New Zealand Gazette.  If you manage to be able to settle your debts prior to the hearing, or alternatively reach a compromise after advertising has taken place, your company’s reputation will already be damaged.  This is one of the reasons why it is so important to seek our assistance early.

Individual Debt

You may make a proposal to creditors for the payment or satisfaction of the debt owed to them.  Your proposal may include the following all or any of the following:

  1. to assign all or any of your property to a trustee (i.e someone who will hold the property for the benefit of the creditors);
  2. to pay your creditors by instalments;
  3. to pay your creditors a sum less than 100 cents in the dollar;
  4. pay your creditors at some time in the future.

In order for any compromise to be put forward you are required to disclose your assets, debts and liabilities.  Your proposal will also include a time, date and venue for the meeting of the creditors.  Any proposal is then filed with the High Court and cannot be withdrawn at this time, without the permission of the Court.  You will nominate a trustee in your proposal who will be called a ‘provisional trustee” and is the chairperson of the meeting of creditors.

The purpose of the creditor’s meeting is to examine you as to your ability to uphold the proposal, discuss with your any ability to amend or modify your proposal, confirm the provisional trustee as trustee, or appoint another person willing to act as trustee.  The resolution of creditors accepting the proposal must be decided by a majority of creditors in number and three-quarters in value of the creditors who—

  • (a) vote; and
  • (b) are personally present or are represented at the meeting or have voted by postal vote.

After the proposal has been accepted by the creditors, the trustee must apply to the Court for approval and the Court will set a hearing date.  The hearing is for the Court to hear any objections made by or on behalf of any creditors.  The Court may still refuse the approve any proposal if it considers feels any part of the process has not been complied with, the terms of the proposal are not reasonable or for any reason it is not expedient that the proposal be approved.

A proposal that is approved by the court is binding on all the creditors whose debts are provable and the court’s approval is conclusive as to the validity of the proposal.

Company Debt

A compromise in relation to a company debt can be proposed to creditors at any time by:

  • (a) the board of directors of the company:
  • (b) a receiver appointed in relation to the whole or substantially the whole of the assets and undertaking of the company:
  • (c) a liquidator of the company:
  • (d) with the leave of the court, any creditor or shareholder of the company.

The proponent, the person proposing the compromise, must give to each known creditor, the company, any receiver or liquidator, and deliver to the Registrar for registration notice of an intention to hold a creditors meeting for the purpose of voting on the resolution.  The information to be contained in the notice is set out in legislation and in particular must contain the terms of the proposed compromise and the reasons for it; and setting out the reasonably foreseeable consequences for creditors of the company of the compromise being approved.

A compromise, is approved by creditors if, at a meeting of creditors the compromise, including any amendment, is adopted.  At any meeting of creditors, a resolution is adopted if a majority in number and value of the creditors or the class of creditors voting in person or by proxy vote or by postal vote in favour of the resolution.  At any meeting of creditors or a class of creditors held, a resolution is adopted if a majority in number representing 75% in value of the creditors voting in favour of the resolution.

When is the best time to seek legal advice? If you receive a letter of demand from a creditor and you already know that you cannot pay the full amount, come and speak with us.

We highly recommend you speak with us regarding how we can assist you to deal with your creditors.

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