Intended to provide a short breathing space keeping creditors at bay allowing a decision on whether a struggling business is viable, Wellington insolvency specialist Heath Gair instead got High Court approval to downsize a contracting business under the umbrella of an extended creditor freeze using Companies Act voluntary administration rules.
Lobbying by insolvency practitioners saw a system of voluntary administration included in company law. Too many companies were pushed under by creditors when there was a chance they be turned around, they said. A short-term freeze on creditors rights would allow an assessment of a company’s likely future. Voluntary administration legislation allows for a twenty day freeze, with creditors then given a chance to vote at a so-called ‘watershed’ meeting; either approving any restructuring proposal put up or instead pushing the business into liquidation.
The High Court was told Peter Jones put his Wellington consulting company Black Dog Consulting Ltd into voluntary administration in February 2023. Black Dog’s net profit of some $894,500 for the 2020 financial year was followed by a $74,300 loss the following year. Liquidity was maintained by failing to pay PAYE, GST and income tax. Inland Revenue is owed $548,000.
Appointed as Black Dog administrator, Heath Gair told the High Court that no recommendation could be made to creditors within the required twenty days, leading to likely liquidation of Black Dog and loss of employment for the sixteen staff employed. But if given a further ninety days he could slim down the company, he said. Mr Gair proposed selling off surplus vehicles and equipment and pro-actively chasing two large outstanding invoices.
Justice McQueen extended the creditors freeze out to June 2023 with the proviso that any aggrieved creditor could challenge this extension.
re Black Dog Consulting Ltd – High Court (21.03.23)
23.034