Business mentor: Pain-free ways to pull the plug

Q. After two long and stressful years, I have come to the realisation that I may need to put my company into liquidation. How do I go about it?

A. Steve Lawrence, senior associate at McDonald Vague, Insolvency and Recovery Specialists, replies:

The process is simple but can be hugely emotional, so it can seem daunting. Let me answer your question by covering the five questions that are commonly asked.

What is the first step?

The shareholders must pass a special resolution appointing a named person or persons as liquidator. That person or persons must have first consented to act in writing.

Who else can appoint a liquidator?

A creditor or other party with an interest in the company can apply to the High Court for the court to appoint a liquidator. Again, the court will appoint a named person or persons who have first consented to act in writing. If the applicant suggests no such liquidator then the Official Assignee will be appointed.

What does a liquidator do?

The principal duty of a liquidator is to take possession of, protect, realise and distribute the assets or the proceeds of the realisation of the assets of the company to its creditors in accordance with the Companies Act 1993; and if there are surplus assets/proceeds, distribute them in accordance with the company's constitution or the act.

Simply, this means that the job of a liquidator is to get back as much money as possible to the creditors. There are many other duties which are set out in the act. Your proposed liquidator should be able to detail these other duties; we will defer from commenting further.

How do I choose a liquidator

First, liquidators come in many forms - and there are "cowboys" within the industry.

Unfortunately, our legislation does not require a high standard of governance or qualifications over who can and cannot be a liquidator. In fact, the main restrictions on who cannot be a liquidator are:

* A person less than 18 years old.

* A creditor of the company in liquidation.

* A person who has, within two years immediately preceding the commencement of the liquidation, been a shareholder, director, auditor or receiver of the company or a related company.

* An undischarged bankrupt.

It is necessary to do your homework to find reputable liquidators.

Who can you seek direction from in this regard?

The Institute of Chartered Accountants of New Zealand is a starting point, or your own accountant or solicitor.

When making inquiries from a potential liquidator there are a few areas that you should consider:

* Cost.

* Experience.

* Independence.

* Professionalism.

The "costs" of a liquidation are generally borne from the assets of the company. That is, the liquidator's fees are usually paid from the proceeds of sale of company assets, cash in the bank and so on.

Unless otherwise agreed to between the two parties, there is no personal liability of the directors or shareholders to pay the liquidator's fees.

A liquidator will generally charge on a time-and-attendance basis like your solicitor or accountant.

In considering the cost also consider what experience the liquidator has. Like any specialist the overall charges should reflect that.

The law of insolvency can be a minefield and unless the liquidators know what they are doing, it can prove expensive for them to research and put into practice what the specialists already know.

The issue of independence is crucial and is referred to under restrictions.

Professionalism is something for you to consider: you want a liquidator to be "human" but at the same time professional.

* For more information, contact Steve Lawrence on email or on the web at McDonald Vague

* Email us your small business question

Answers are courtesy of Spring - A State of Mind for Business.