How to judge the right moment to wind up, and who actually gets paid when you do.
Most owners know the number before they say it out loud. There’s a point where a business stops being a going concern and starts being a hope, and the person closest to it is usually the last one willing to name it.
Sometimes that’s ego. More often it’s thirty years of work, a family name on the van, and a belief that the next big job fixes everything.
Hanging on feels like loyalty. It also carries a legal edge most directors never see until a liquidator asks about it.
Nobody is short of company. Centrix’s August credit indicator counted 3,092 company liquidations in the 12 months to July 2026, up 14% on a year earlier. Construction accounted for 764 of those.
Three windows
Think of it as three windows. Too early, when there’s still a workable business under the debt and a sale or restructure would return more to everyone.
About right, when the numbers say stop and there are still assets to distribute in an orderly way. Too late, when the only money still at risk belongs to other people.
The Companies Act 1993 doesn’t define the right moment, but it’s clear about the wrong one. Section 135 covers reckless trading, and section 136 covers agreeing to obligations without reasonable grounds to believe the company can meet them.
Both duties sit with each director, and under section 301 a liquidator or creditor can ask the court to make directors pay personally.
The Supreme Court’s August 2023 decision in Yan v Mainzeal showed how far that reaches. The court found the directors of the collapsed construction firm breached section 135 from early 2011 by running a trading policy “likely to create a substantial risk of serious loss to the company’s creditors”, the test the section sets.
The money came from section 136. The court ordered $39.8 million plus interest for obligations Mainzeal took on after that point, with the chair, Richard Yan, liable for the full amount and the other three directors for up to $6.6 million each.
Those sections apply just as neatly to a five-person firm in Rangiora. Once solvency is in doubt, taking a customer deposit for work you can’t be confident of delivering is the behaviour they were written for.
Who actually gets paid
A widely held belief has the bank paid first and the liquidator second. It’s close enough to be dangerous. Schedule 7 of the Companies Act is more particular.
A creditor holding security over a specific asset, say a mortgage over land, is paid out of that asset and sits outside the queue. The liquidator’s fees and expenses then come off the top, along with the costs of anyone who applied to the court to start the liquidation.
Employees are next. Wages for the four months before liquidation, holiday pay and redundancy are preferential, capped at $31,820 for any one employee. Unpaid KiwiSaver employer contributions are preferential too, and sit outside that cap.
In a family firm, the cap comes with a catch. Anyone who was a director in the 12 months before liquidation, or is a relative or nominee of a director, doesn’t count as an employee for this purpose.
Inland Revenue comes after the employees rather than alongside them, and its list is broader than most expect. GST, PAYE, withholding tax and Customs duty all rank ahead of ordinary creditors.
Where other assets fall short, the staff and IRD claims are paid out of the company’s accounts receivable and stock, even when a bank holds a general security over them. The bank’s security still ranks first over everything else it covers, but over debtors and inventory it queues behind the staff and the IRD.
Unsecured trade creditors are last, and by then there’s often nothing left. Any director who has signed a personal guarantee should assume they’re exposed wherever the assets land.
Move first and you keep a choice
The most useful thing in a bad situation is that shareholders can still choose who runs it. Under section 241, shareholders can appoint a liquidator of their choosing by special resolution, which by default needs 75% of the votes cast.
Wait for a creditor to apply to the High Court and the court appoints, usually the applicant’s nominee. Once that application is served on the company, shareholders have only 10 working days to appoint their own liquidator, unless the creditor agrees.
After that the company has handed over its last decision. Advice is worth far more early than late.
Four things worth doing before the decision, not after.
· Get the real position onto one page. Cash, debtors, secured and unsecured debt, every personal guarantee signed.
· Ask your accountant for a dated solvency opinion, and take the date seriously.
· Check any proposed liquidator is a licensed insolvency practitioner on the Companies Office register.
· Ask whether voluntary administration fits better. It exists for a business with a viable core and a bad balance sheet.
None of this is a pleasant conversation to open. It’s a much better one to have while there’s still something to distribute, a choice about who handles it, and a chance the losses stop at the company’s door.
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