Insolvency Terms & Meanings

Act (statute)

Acts are the laws, passed by Parliament, that govern our country such as the Companies Act 1993. Any reference to a particular Act also includes all the regulations and rules made under that Act such as the Companies Act 1993 Regulations 1994, and the Companies Act 1993 Liquidation Regulations 1994.

Action

An older term for a court proceeding or lawsuit – for example, ‘a civil action’.

Address for service

A nominated physical street address where legal documents can be delivered and served on a company. The registered office address and address for communications for the company is available from a search of that company’s records held on the Companies Office website.

Adjourn/adjournment

If a court proceeding is ‘adjourned’, it’s postponed, or put off, until a later date.

Administrator

A person appointed to run the affairs of the company, call creditors meetings, report on the affairs of the company, and pursuant to Voluntary Administration legislation, prepare and present a DOCA.

Affidavit

A written statement sworn or affirmed before a person who has authority to administer an oath such as a lawyer, Justice of the Peace, or the Court Registrar.

Affirmation

A promise, written or spoken, that the statement the person is making is true and correct, but without any reference to the Bible or to religious beliefs. An affirmation has the same legal effect as an oath and may be sought by a Liquidator before examining a person who is requested to attend on that Liquidator to provide information about the past affairs of the company.

Agent

A person who has been appointed to act on behalf of another. For example a Liquidator is the agent of the company in liquidation. A Receiver however is the agent of the appointing party (the secured) being the principal, rather than strictly as an agent of the company.

Applicant

A person who applies to a court for an order, direction or decision. Many civil cases are begun by an ‘application’ – for example, an application for leave to apply under section 284 of the Companies Act 1993. However in some civil cases the person who begins the case is called the ‘plaintiff’, and they begin it by filing a ‘statement of claim’ with the court (for example, if suing a person for breach of contract).

Application

A formal request to a court for an order, direction, or decision under a particular Act, such as an application to review the decision of a Liquidator or an application to have a company placed in liquidation.

Application for direction

An application made to the court for instructions on how to progress the case such as an application for directions pursuant to section 284 of the Companies Act 1993.

Appointment

The act of appointing or accepting the responsibility for a role or specific obligation. A Liquidator is appointed by the shareholders, or the directors subject to the constitution of the company, or by the Court subject to consent by the nominee to the appointment.

Arbitration

A method of resolving a dispute where the parties agree to be bound by the decision of an independent person (the ‘arbitrator’), rather than going to court. The arbitrator’s decision is usually called an ‘award’. The Arbitration Act 1996 sets out a general framework for arbitration.

Arms Length

An agreement or transaction with a person who is an independent third party.

Arrears

The value of the money by which an obligation is overdue.

Asset

An object, chattel, resource or item or an item of property which has value. An asset can be intangible (i.e., not physical) such as goodwill or intellectual property rights.

Assign or Assignment

The transfer of legal rights from one person to another – for example, the right to the time left on a lease of a property, or the right to the proceeds of an insurance policy.

Attachment order

A court order requiring the employer of a person who owes money to deduct a certain amount from the employee’s earnings and to pay it directly to the employee’s creditors.

Bad faith

Dishonesty or possible fraud in a transaction – for example, entering into an agreement with no intention of ever carrying out its terms, or knowingly misrepresenting the quality of something when offering it for sale.

Bailiff

A bailiff manages and enforces fines and serves some court documents. Their powers include, for example, seizing property under a court warrant of seizure. Bailiff’s work in the Collections Units attached to District Courts and can also assist a Liquidator in the collection of assets, although this is generally done either by the Liquidator personally, or agents employed by the Liquidator for the purpose.

Bankrupt / Bankruptcy

A person who is unable to pay their debts can apply to the Official Assignee to be declared bankrupt. Most of their debts will then be cancelled, but their property (assets) will be transferred to the Official Assignee, and the person’s creditors then must deal with the Official Assignee. A bankrupt person can keep only a limited amount of their property, and can’t operate a business until they’re discharged from bankruptcy, which is usually after three years. (The Official Assignee is a government official who works for the Insolvency and Trustee Service at the Ministry of Economic Development.) If the person doesn’t apply for bankruptcy himself or herself, their creditors can apply to the High Court for it to declare the person bankrupt.

Beneficiary

A person who may receive, or who will receive, some form or type of asset. Generally a person named in a will or insurance policy to receive money or property. Also a person who receives a benefit from a trust.

Bill of Exchange

A legal document such as a cheque where one person in writing specifies that a third party (a bank) will pay a person a specific sum of money at a specific time, or upon request.

Bona fide

A Latin term meaning an act that was done honestly and in good faith.

Bond

A document with which one person promises or is required to pay another person or the court a specified amount of money within a certain time. Bonds are used for many things, including borrowing money or guaranteeing payment of money.

Case law

The law created by judges when deciding individual disputes or cases. It includes the common law (areas of law that rest mainly or entirely on court decisions) and also decisions interpreting and applying statutes (Acts).

Caveat

A notice lodged in a court or other appropriate office (such as Land Information NZ) to prevent certain things being done. Caveats may be brought under a number of different statutes, but they usually relate to land, marriage or estates (the property of a deceased person).

Certified copy

A copy of a document that had been signed and certified as a true and correct copy by someone who has the legal authority to do so.

Charge

A charge over a company’s assets will generally be created by or through a General Security Agreement “GSA” or by a debenture, and registered on the Personal Property Securities Register “PPSR”. A Purchase Money Security Interest “PMSI” is a charge over money of the company such as accounts receivable, stock or money.

Chattel (real)

A leasehold interest in land or buildings (that is, an interest that comes to an end after a certain time) or that is otherwise less than freehold (full ownership).

Chattel (personal)

An asset that is physically movable, and not attached to land or real property. This includes not just goods but also, for example, money, cheque’s, and documents of title (ownership) to property.

Chose

An item of personal property (that is, property other than land and buildings, which is called ‘real’ property). From the French word meaning simply ‘thing’. There are two kinds of ‘chose’:

• A ‘chose in action’ is something that a person doesn’t currently have in their possession but that they have a right to recover through taking court action if the thing is withheld from them (such as money in a bank, or money owed to them under a loan contract).
• A ‘chose in possession’ is something tangible that a person has a legal right to and currently has in their possession (money in the person’s pocket, for example).

Collateral

Property that a borrower (debtor) puts forward as security for the debt.

Company Guarantee

A company guarantee is where a company guarantees the debt of another company or person.

Compensatory damages

Money awarded in a civil case to compensate the plaintiff (the person who brought the case) for the loss they’ve suffered, which can be actual monetary costs (such as medical bills and lost wages) and also losses that are less easily measured (such as pain and suffering).

‘Exemplary’ (or ‘punitive’) damages, by contrast, are damages awarded in addition to compensatory damages. They’re awarded not to compensate the injured person but to punish the other person if they’ve acted in a particularly outrageous way.

Completion date

That date on which the transfer of title is to be made. Commonly used in agreements for sale and purchase.

Compromise

“Compromise” means a compromise between a company and its creditors (or between a person and his or her creditors), including a compromise which (a) Cancelling all or part of the debt of the company; or, (b) Varying the rights of its creditors or the terms of the debt; or, (c) Relating to an alteration of a company’s constitution that affects the likelihood of the company being able to pay a debt.

Compromise with creditors

A voluntary agreement between a company (or person) and its creditors following a formal proposal setting out the terms and effects of the proposal, and generally only after acceptance by the creditors who have been given the opportunity to vote on the proposal. Part 14 and 15 of the Companies Act 1993 refers.

Conflict of interest

Refers to where a person who may have personal or financial interests that compete with their professional obligations.

Consideration

Refers to money or something of value that is exchanged for acquiring some goods or services or some other interest in an asset.

Constitution of Company

A document covering the rules and specified operation of the company.

Contract

An agreement between two or more parties that they intend to be legally enforceable. Contracts are usually written, but an oral (spoken) agreement can also be a contract. Some contracts (for the sale and purchase of land, for example) must be in writing in order to be legally binding. To be legally binding, a contract must also satisfy a number of other requirements – for example, each side must provide something of value (‘consideration’) to the other.

Conveyance

An act or action which transfers property from one person to another.

Copyright

A person’s right to prevent others from copying original works that he or she has written or otherwise created. New Zealand’s Copyright Act 1994 protects, for example, literature, music, artistic works, films and sound recordings. A company may have an asset of value from copyright work.

Corporation

A body or organisation that is formally incorporated and that therefore has a separate legal existence from its members or shareholders, such as a company registered under the Companies Act 1993 or a sports club incorporated under the Incorporated Societies Act 1908.

Court

In respect of the Companies Act 1993 “Court” is defined as the High Court. Also it means the place where applications and other documents must be filed for Court proceedings and where Court hearings take place (that is, the courthouse or courtroom itself).

Covenant

An agreement or promise that binds a person to do or not do something.

Creditor

A person (or institution) to whom money is owed. (The borrower is called the ‘debtor’.)

Creditors Claim forms

Or called “Proofs of Debt” forms. Claims against a company in liquidation must be made in the prescribed form and contain full particulars which evidence or substantiate the claim, and may be made for present or future, certain or contingent debt and can be ascertained as a debt or a liability for damages. It is an offence to make a false claim with penalties of up to 2 years imprisonment and or a fine not exceeding $200,000.00.

Crystallization

That point in time where a contract or agreement triggers certain clauses in that contract. On the date of liquidation of a company, the individual debts of the company are deemed to have crystallized to the amount as owed by the company in total at that time. In the respect of a lease of the property, the crystallization amount is for the full period of the lease remaining at that time. A landlord would “prove” for the value of the debt owing up to the date of the liquidation, and “claim” for the unexpired portion remaining of the lease.

Current Account

The recorded amount of financial investment paid into a company by a shareholder, or the amount of funds recorded as taken from the company by the shareholder. If the shareholders current account is overdrawn, this debt can be claimed by the Liquidator to be repaid to the benefit of the liquidation.

Damages

Money ordered to be paid to a person in a civil case to compensate them for loss or harm that they’ve suffered as a result of the other person’s wrongful actions.

Additional damages – called ‘exemplary’ or ‘punitive’ damages – may be awarded to punish a wrongdoer who acted in a particularly outrageous way, if the compensatory damages aren’t sufficient punishment.

Debenture

A debenture is a form of mortgage over the assets of the company. These can be either fixed or floating charges although the introduction of the Personal Properties Security Register “PPSR” has updated the effect and status of a previously accepted floating charge. A modern debenture is generally effected through a General Security Agreement and will generally provide for the appointment of a Receiver should the company default on the repayments. A charge or interest must be registered on the PPSR as soon as possible after the charge was created, and preferably before the security or advance was passed to the company such as a PMSI security. In the event the charge is not registered properly, the charge may be voidable by a Liquidator.

Debtor

A party who owes money. (The party to whom they owe the money is the ‘creditor’.)

Deed

A formal legal document that is signed and witnessed. Deeds are used for a variety of purposes – for example, to deal in some way with an item of property (such as a deed of gift) or to acknowledge that a particular state of affairs exists (such as a deed of acknowledgement of paternity, or a deed of acknowledgement of debt).

A deed is different from a contract. A contract doesn’t have to be witnessed and usually doesn’t even have to be in writing, but both parties to a contract must each provide something of value (‘consideration’) to the other. By contrast, a deed can give legal effect to a transaction, such as a gift, where only one party provides something of value to the other. The deed will be legally enforceable so long as it’s in writing, it’s witnessed by someone who records his or her address and occupation on the deed, and the parties to the deed intend it to take effect as a deed.

Deed of Company Arrangement – “DOCA”

A binding compromise between a company and it’s creditors that allows the company to enter into an arrangement with its creditors over the value and payment of debts that it owes.

Default

A failure to fulfill a legal obligation – for example, not paying an account when it is due.

Director

A member of the board that controls the affairs of a company. A director’s appointment to a company is required to be registered with the Companies Office and a director is required to comply to those duties specified by the Companies Act 1993.

Disbursements

Liquidation expenses that the Liquidator may charge the company – for example, for photocopying, courier charges and toll calls.

Discharge

To cancel or relieve a person of an obligation, debt or responsibility.

Disclaim

The act of denying, refusing, renouncing or repudiating an interest that one might have in some item. A Liquidator has the power to disclaim onerous property such as an unprofitable contract, property, or a litigation right.

Disclosure

Generally it means making information available to the public or to certain classes of people.

Dissolution

The act of ending, terminating or winding up of a company or state of affairs – refer the removal of a company from the Companies Register.

Distraint

The earlier right that a landlord had to seize property (assets) of a tenant for the payment of rent arrears prior to the introduction of the Property Law Act 2007.

Distribution

The financial amount or amounts distributed from the realisation’s of the company’s assets. A statement of realisation’s and distribution’s is required to be dispatched to every creditor whose claim has been admitted in the liquidation, and also every shareholder, with the Liquidators final report on the conclusion of the liquidation.

Drawings

Money paid from the company to a shareholder of the company. Drawings are not strictly treated as income but as a loan from the company to the shareholder and as such it becomes a debt due to the company on liquidation. Drawings may be treated as income only if tax is paid and the funds are paid through the company. If the company is placed into liquidation and a shareholder has an overdrawn current account, the Liquidator can make a claim against that shareholder for the repayment of those funds recorded as overdrawn to the benefit of the company in liquidation, and therefore to the benefit of the company’s creditors.

Effective date

The date an agreement, legislation or other Act comes into force.

Employment Court

The Employment Court hears cases relating to employment disputes. This includes appeals from decisions of the Employment Relations Authority, decisions on questions about the interpretation of the law that are referred to it by the Authority, and cases that the court hears at ‘first instance’ about matters such as strikes and lockouts.

Enactment

Any Act (statute) or provision in an Act, and any rule or regulation made under the authority of an Act.

Encumbrance

Any claim or restriction on the title to (ownership of) an item of property. Examples are a mortgage or an easement over the property that allows a neighbour to have a driveway over the property (a ‘right of way’). Encumbrances might be imposed by the local council, or they can be based on a private agreement.

Enduring power of attorney

An authority given by one person (the ‘donor’) to another person (the ‘attorney’) to act and make legally binding decisions on their behalf (either for personal or property matters or both), and which can remain in force even if the donor loses mental capacity (for example, if they develop dementia or suffer a serious head injury). Compare with an ‘ordinary power of attorney’.

Equity (Financial)

Refers to the excess value from a piece of property, after accounting for any charge or security against that piece of property.

Equity (Law)

Often used as a vague synonym for ‘justice’. ‘Equity’ also refers to a specific branch of the law that in England before 1873 was administered by separate courts.

In New Zealand there have never been separate equity courts, but today the New Zealand courts still recognise a distinction between ‘equitable’ interests and remedies on the one hand, and ‘legal’ interests and remedies on the other. For example, the concept of a trust rests on equity: while the trustees are the ‘legal’ owners of the trust property, they have an ‘equitable’ duty to manage the property in the interests of the beneficiaries of the trust. The beneficiaries are said to have an ‘equitable’ (or ‘beneficial’) interest in the trust property, in contrast to the trustees’ ‘legal’ interest.

Escrow

The holding of money or a written document, such as shares or a deed, until certain conditions are met by the two contracting parties.

Essential Services

Essential services includes the retail supply of gas, electricity, water, telecommunication services pursuant to section 275 of the Act. Suppliers of essential services cannot refuse supply to a Liquidator on account of debts outstanding prior to appointment. Nor can an essential service provider require a guarantee from a Liquidator prior to or as a condition of continuing supply. A cost of an essential service is treated as an expense of the liquidation and has priority to a Liquidator’s remuneration.

Ex parte

‘Ex parte’ is Latin for ‘by (or for) one party’. An ex parte application to the court is one that is made ‘without notice’, meaning that the application documents are not ‘served’ on (given personally to) the person who the application is made against or who is to be affected by it (the ‘respondent’). The respondent is therefore unaware of the application and does not take part when the court hears and decides the application.

Examination for Discovery By a Liquidator

A legal process whereby one party examines the party on the other side, usually under oath for the purpose of confirming facts and admissions from the other party. A Liquidator has the power to examine directors, shareholders, staff, creditors, banks, solicitors, accountants and any other person he may consider appropriate. These are wide powers prescribed pursuant to s 261 of the Act. Any person who fails to comply commits an offence and is liable to a fine not exceeding $200,000.00 or up to 2 years imprisonment.

Fair Market Value

Valuation for any asset has been described as an art rather than a science. The factors under consideration will include a willing buyer – willing seller situation, and will be further determined by the period that the item of property is exposed for sale.

Fee Simple

Title to ownership without restriction to limitation. For example, ownership of land in fee simple means the land is owned outright as opposed to land which is leased.

Filing

Formally lodging an application or other document at a Court. This can be done in person or by mail, or by email in some Courts (e.g. the Supreme Court).

Fixed Charge

A fixed charge is a form of security granted over specific assets preventing the debtor dealing with those assets without the consent of the secured creditor. It provides the secured creditor with priority as a first claim on the proceeds of sale, and usually according to the terms of the security agreement gives the secured party the ability to appoint a Receiver to take control of the assets in the event of a default under the agreement.

Fixtures

Those assets that are attached to or part of the building, or are fixed to land.

Floating Charge

A floating charge is a form of security granted to a creditor over general assets of a company which may change from time to time in the normal course of business such as accounts receivable and trading stock. The company can continue to use the assets in its business until an event of default occurs and the charge crystallizes on the appointment of a Receiver. If this happens, the secured creditor can realise the assets to recover their debt by appointing a Receiver and obtaining the net proceeds of the sale subject to the prior claim of preferential creditors.

Garnishee

When someone (person C) has successfully brought a civil case against person B, a person (often an employer or bank) who owes money to person B (for example, wages due to an employee) and who is required by a court order to pay this money, not to person B, but instead to person C, who has successfully brought a civil case against person B. These orders are called ‘garnishee orders’.

Garnishee summons

A summons issued to the third party (sub-debtor) who holds money belonging to a defendant to withhold it and to appear in court to answer inquiries.

Good faith

Honestly and without deception. An agreement might be declared invalid if one of the parties entered into it with the intention of defrauding the other – that is, if they entered into it in ‘bad faith’.

Goodwill

A financial value attributed to a business operation that is not tangible, but arises from reputation, expertise, service or some other intangible that attaches to the business creating a considered monetary “value”.

Gross negligence

Failure to use even the slightest amount of care, showing recklessness or willful disregard for the safety of others.

GSA

General Security Agreement which generally provides for a charge over the assets of a company, and also for the appointment of a Receiver to the company in the event of a payment default.

Guarantor

A person who promises in writing to pay a certain debt of a debtor if the debtor defaults.

Hearsay

Second-hand information presented by a witness who didn’t directly see or hear the events in question. Hearsay is seen as being particularly unreliable and is generally not admitted as evidence in court. This is because the person who did witness the events directly is not available to be cross-examined about this. There are, however, some exceptions that allow hearsay to be admitted as evidence in certain cases.

High Court

The highest court in New Zealand that is able to hear cases at ‘first instance’ (that is, where cases are first tried, before any appeals). The High Court is above the District Court in the court hierarchy, and hears appeals from the District Court. Above the High Court is the Court of Appeal and then the Supreme Court.

The High Court is New Zealand’s only court of ‘general jurisdiction’, which means that there are no limits on the kinds of cases it can deal with – for example, no limits on the kinds of criminal offences it can hear or on the amount of money that it can deal with in a civil case. The District Court, by contrast, has a limited jurisdiction, while the Court of Appeal and Supreme Court have specialist appeal jurisdictions.

The High Court is the specified forum to determine matters concerning matters as defined by the Companies Act 1993.

Immunity

Being exempted from a legal duty, penalty or prosecution.

Indemnity

Compensation for a loss or wrong. It can also mean protection or insurance against penalties that might be imposed on you because of something you’ve done. It protects the actions of one party or guarantees protection, or removes a person from liability resulting from the actions of that party.

Injunction

A court order saying that a particular thing must not be done. Injunctions can be temporary (‘interim injunctions’) or permanent.

Insolvent / insolvency

When a person or company has more debts and liabilities than the total value of its assets.

Insolvent Liquidation

An insolvent liquidation is due to the company being unable to pay its debts as they fall due, and/or its debts are higher in value than its assets. A Liquidator can be appointed by the Court, or the shareholders of the company, or the directors if provided for in the company’s constitution. The Official Assignee can only be appointed by the Court. The creditors have the right at a creditors meeting to replace either the Official Assignee or the shareholders appointed Liquidator with a Liquidator of their choice provided the nominee satisfies the qualifications required to act as a Liquidator prescribed by the Act.

In Specie

A Latin term meaning “in kind”, or “in its own form”. For example a debt may be paid in specie by assigning an asset of equivalent value, rather than payment of that debt.

Inter alia

Latin for ‘among other things’.

Interest on Claims

Interest is payable on creditor’s claims up to the date of liquidation at the contracted rate (only if the contract entitles the creditor to charge interest). Thereafter interest is payable on all admitted creditor’s claims at the rate prescribed by the Judicature Act 1908 depending only on the final value of the assets realized from the company in liquidation, and only after all the claims admitted in the liquidation have been paid in full.

Interim Dividend / Distribution

A dividend paid to creditors before the liquidation is completed or finalized.

Interim Liquidator

A person appointed by the Court to preserve the assets of a company between the period of an application to the Court to liquidate the company and the date for the Court to determine the application to place the company into liquidation.

Interim Order

A temporary Court order intended to be for a limited duration, usually until the Court has the opportunity of hearing and deciding on the matters of the case.

Joint and Several Liability

The liability of more than one person for which each person may be sued for the entire amount of loss or damages.

Judgement

A formal decision, sentence or order of the Court.

Jurisdiction

Generally means the extent of a person’s or body’s powers or authority. It is usually used in the following specific ways to mean:

• the limit of a Court’s or judge’s power or authority
• the distinction between broad subject areas of law (for example, between the criminal, civil, family and youth jurisdictions)
• the distinction between the different levels of Courts (such as between the High Court and the District Court)
• the boundaries of any domestic Court’s influence overseas.

Just cause

A legitimate reason. Often used in the employment context to refer to the reasons why someone was fired.

Law

A collection of enforceable rules, creating rights and obligations for citizens.

Leasehold improvements

Assets which are attached to a building and cannot be removed from any property that has been leased.

Legal information

This term is used to mean general information about legal rights, obligations and processes that is not directed at any particular person’s situation – in contrast to legal ‘advice’, which does address a particular person’s rights, obligations and options. Government agencies, community groups and other organisations provide legal information through written publications such as pamphlets and leaflets and through websites, and also in person in some cases.

Legislature

House of Parliament. The legislative arm of government incorporating the parliamentary and executive arms of government.

Liability

Any legal responsibility, duty or obligation.

Lien

A claim against someone’s property – for example, a mortgage. The lien is established to secure payment of a debt by the property owner if the property is sold.

Liquidated demand

A claim where the amount in question is a specific amount that is set by a specific document (such as a contract). (Compare with ‘un-liquidated demand’.)

Liquidation

A liquidation commences on the appointment of a Liquidator to wind up the affairs of the company, realise the assets of the company and distribute between the creditors.

Liquidator

A Liquidator is the person (or persons in the event of joint Liquidators being appointed) who is responsible for the liquidation of the company. The Liquidator is appointed by the company’s shareholders, or its directors if the constitution permits, or by the Court. The qualifications for a person to act as a Liquidator are prescribed by section 280 of the Companies Act 1993.

Liquidator’s costs and expenses

A Liquidator’s costs and expenses (disbursements) has priority over his or her remuneration. Costs and expenses are those costs and expenses incurred by the Liquidator in undertaking his or her duties. Remuneration hourly rates of a Liquidator are not limited (subject to being reasonable) for voluntary appointments, whereas for Court appointments the Liquidator is restricted to those hourly rates prescribed under the Act (Regulation 28) unless modified and accepted by the Court. Liquidators costs and expenses and remuneration are payable in priority from the assets of the company. Liquidator’s remuneration (although not generally disbursements) can be challenged through the Court pursuant to section 284 or section 301 of the Act by specified named parties who generally have a valid claim (or an accepted interest) in the liquidation.

Liquidator’s reports

The  Liquidator must within 5 working days firstly by Public notice and notice to the Registrar of Companies, advise of the Liquidator’s appointment and contact details for the liquidation, and within 10 working days prepare a report to all creditors of the voluntary appointment. For Court appointed Liquidators that period is extended to 25 working days. The report should contain a statement of affairs, proposals for completing the liquidation, and if practicable the expected date for the completion of the liquidation. Also to be advised is the option of a notice calling a meeting of creditors, or the reasons why a meeting will not be held. Further reports are due every 6 months from the date of the commencement of the liquidation, with the final Liquidator’s report containing a financial statement of realisation’s and distribution’s for the period of the liquidation.

Litigation

A legal action started and pursued through the Court.

Mareva injunction

A Court order preventing a party to a civil case from disposing of assets so that those assets can’t be dealt with as part of the case. In effect the order freezes a party’s assets until the case is concluded.

Meeting of Creditors / Shareholders

The procedures for calling and conducting a creditors meeting for companies is set by the Fifth Schedule of the Act. Meetings can be held by assembly, or by audio or audio-visual communications (such as the Video Conference facility at NMS), or by postal ballot. A Liquidator has discretion of whether to call a meeting of creditors. A Liquidator can decline to hold a meeting if he or she believes the request for a meeting is frivolous or vexatious, or not made in good faith.

Mortgage

A loan agreement secured against an interest in real property which guarantees the payment of the debt.

Mortgagee

The party who lends and issues the mortgage, i.e., such as a bank.

Mortgagor

The borrower in a mortgage agreement.

National Enforcement Unit

A separate division within the Ministry of Economic Development. Investigates and where appropriate prosecutes offences under various legislation, for example on behalf of Energy Safety, the Official Assignee, the Registrar of Companies, the Registrar of Motor Vehicle Traders, and the Registrar of Radio Frequencies.

Negligence

A failure to use the degree of care that a reasonable person would use in the same situation. ‘Negligence’ is a specific tort (or ‘civil wrong’) for which a person can be sued, but the term also features regularly in many different statutes and legal contexts.

Oath

A declaration before a person who has authority to administer an oath, which invokes some religious belief and says that a thing is true or right. For example, a Christian would swear an oath on the Bible.

Official Assignee

The position of Official Assignee is a position created by statute with powers contained and as defined within the Insolvency Act 2006. The Official Assignee is the default Liquidator for Court appointed liquidations unless the creditors provide an alternative nomination.

Ordinary power of attorney

An authority given by one person (the ‘donor’) to another person (the ‘attorney’) to make decisions and act on their behalf, particularly in business or legal matters, but which comes to an end if the donor loses mental capacity (for example, if they develop dementia or suffer a serious head injury). Compare with an ‘enduring power of attorney’.

Pari Passu

The pari passu rule (the most fundamental principle of insolvency law) is applied in the context of liquidation to mean that all creditors of the same class rank equally. On this basis they are entitled to share in the pool of assets available for distribution in proportion to their claims.

Personal Guarantee

A personal guarantee is where one party guarantees payment of another’s debt. Common forms are directors or shareholders guarantees to landlords or banks to meet payments if the company fails to pay monies under some lease or security agreement.

Petition

The application made under the Insolvency Act 2006 seeking the Court to place a person in bankruptcy.

Petitioning Creditor

A petitioning creditor is the party who makes application to the Court to place a company in liquidation generally for payment defaults. The costs for a petitioning creditor can range from $1,500 to $4,500 however those costs have preference over other unsecured creditors in the liquidation pursuant to Schedule Seven of the Act.

Partnership

An association of two or more people who agree to share in the profits and losses of a business venture. Unlike a company, a partnership is not a separate legal entity. A partnership is sometimes informally referred to as a ‘firm’.

Patent

An exclusive right granted by the government for a new invention. The owner of the patent (the ‘patentee’) can exclude others from making commercial use of the patented invention for a certain number of years.

Plaintiff

The party making a claim in a civil case, such as for breach of contract, defamation or negligence.

If a civil case involves an application for a court order the person who brings the case is called the ‘applicant’.

PMSI – Purchase Money Security Interest

A specific security interest registered on the PPSR over accounts receivable and or stock, and money of the company by a secured party who has authority to do so.

Possession date

That specific time which is mutually agreed upon when that the party purchasing a property will take ownership, possession or control over it.

PPSA – Personal Property Security Act

Requires a creditor to register on the PPSR (Personal Property Security Register) any interest that he has in property of another before the security is considered valid. The PPSR register can then be checked (through the Ministry of Economic Development web site; www.ppsr.govt.nz ) by any other party wishing to take security on a (or various) assets. Priority rules in that the first registered charge over the property has priority. (The taxi rank scenario).

PPSR – Personal Property Security Register

The PPSR register is available through the Ministry of Economic Development web site www.ppsr.govt.nz by any party with authority.

Power of attorney

An authority given by one person (the ‘donor’) to another person (the ‘attorney’) to act and make legally binding decisions on their behalf.

There are two kinds of power of attorney: an ‘ordinary power of attorney’ comes to an end if the donor loses mental capacity (for example, if they develop dementia or suffer a serious head injury), while an ‘enduring power of attorney’ can remain in force even if the donor loses mental capacity.

Precedents

A decision in a previous Court case that is used to support a decision in a later, similar Court case.

Preference

Priority given to a creditor, e.g., when a debtor goes bankrupt, or the right of one creditor to receive payment before another.

Preferential Creditors

Those creditors that rank in priority ahead of unsecured creditors pursuant to the Seventh Schedule of the Companies Act 1993. Broadly, preferential creditors are firstly those defined as supplying an essential service (s 275), Liquidators costs and expenses and remuneration, petitioning creditors, creditors who assist fund preservation or recovery of the company’s assets, company employees to a maximum of $18,700.00, and the IRD

Privileged (document or information)

A document or information that a party cannot be made to disclose in Court.

Promissory note

A written document in which a borrower agrees (promises) to pay back money to a lender according to specified terms.

Proofs of Debt

Those claims lodged by creditors in the liquidation of the company, now called creditors claims.

Proper Accounting records

The requirements are set out in the Companies Act 1993 and the Financial Reporting Act 1993. If a company does not maintain proper accounting records, then on the application of the Liquidator the Court may declare the directors personally liable for the debts of the insolvent company. However the Liquidator must prove that the lack of proper accounting records caused or significantly contributed to the demise of the company.

Pro Rata

To divide equally and proportionately amongst parties who have a claim in the insolvent estate.

Pro se

If a person appears in court ‘pro se’, it means that the person represents himself or herself without the help of a lawyer. Pro se is Latin for ‘for himself / herself’. The new definition is a Litigant in Person (L.I.P.)

Proxy

A document authorizing somebody to act for another person. Proxy forms are used in creditors meetings where one party authorizes another party to vote in the interests of that other party during that meeting.

Public Acts

Acts of Parliament that affect the whole of New Zealand, like the Companies Act 1993; Liquidation Regulations 1994 – as opposed to ‘private Acts’, which affect only particular private organisation’s, and ‘local Acts’, which affect only particular parts of the country.

Public Notice

Is determined by publishing a matter in the “public notices” section of a publication, generally a newspaper. Liquidators are required to provide public notice within 5 working days on their appointment and notice of the liquidation in at least one issue of the major circulating newspaper in the area of the company’s place of business, or the principle place of business, or in the area of the registered office of the company.

Quantum

Meaning the amount.

Quorum

The minimum number of persons that must be present or by proxy, at a meeting of creditors before the meeting can be deemed to have properly conducted the business of the meeting. Under the Companies Act the minimum number of persons to be present is three.

Quid pro quo

Latin phrase that means ‘something for something’. The concept of getting something of value in return for giving something of value. For a contract to be binding, it usually must involve the exchange of things of value (called ‘consideration’).

Realisation of Security

The effect of realizing the value from any asset subject to a security.

Realisation

The amount of financial value received from the sale of the company’s assets. A financial statement of realisation’s and distribution’s is required to be dispatched to every creditor whose claim has been admitted in the liquidation and every shareholder with the Liquidator’s final report on the conclusion of the liquidation.

Reasonable Director

Applies to the duty of care defined in the Companies Act 1993 by a director undertaking their duties on behalf of the company. The factors having relevance are the nature of the company, the nature of any decision against the position and responsibilities of that director.

Receiver

Is the person appointed by a security agreement held by a secured creditor, debenture holder or the Court to take control of the assets subject to the charge, and realize those assets. A Receiver can carry on the business of the company, sell the company or its assets subject to the authority contained in the security agreement.

Receivership

The term which applies to a company that has had a Receiver appointed.

Reckless trading

A director or directors of a company must not cause or agree to carry on a business which may create a significant risk of serious loss to the company’s creditors. An action by a Liquidator or Receiver may be brought against the directors for a breach of this duty.

Registered office

A company’s registered office is that as advised to the Registrar of Companies, and is the address for service where documents relating to legal proceedings may be served. It is also the address where the register of shareholders and directors is held.

Registrar of Companies

The Registrar of Companies administers the Companies Act through the Ministry of Economic Development.

Removal from Register

When a company has been liquidated or has failed to file annual returns with the Registrar of Companies, the company is “struck off” or removed from the companies register on application by the Liquidator, or at the discretion of the Registrar of Companies.

Respondent

The person against whom an application to the Court is made, or the opposing party to an appeal.

Restricted Period

The period of 6 months prior to the commencement of the liquidation of the company.

Retention of Title, Romalpa Clause

Where ownership does not transfer to the purchaser until payment is made. The goods are generally provided to the purchaser under specific terms of a condition of sale type document, and the purchaser accepts that he is holding the property (or the proceeds of any property) in trust on behalf of the provider (seller).

Secured

The position a creditor has when he has a security or legal right in some property in the property of a company in liquidation or receivership.

Secured debt

In bankruptcy proceedings, a debt is secured if the debtor put up property as security (or ‘collateral’) for the debt, so that the creditor would have the right to take possession of the property if the debtor fails to repay the debt.

Security

A sum of money or interest in property of value provided by a creditor to another as a guarantee in payment of that debt, in the event of a default by that creditor.

Service of documents

The formal delivery of a legal document (for example, an application to a Court) to a person who will be affected by it. There are rules about service of documents (for example, service may have to be in person rather than by post, fax or email). The procedures for serving documents on directors, shareholders, or an employee are set out in the Companies Act.

Shareholder

One of the owners of a limited liability company. Their name is entered in the share register of the company held at the registered address of the company.

Shareholders rights

Certain rights are given to shareholders in the Companies Act to take action against the directors for any matter in connection with the operation or statutory operation of the company.

Solvent liquidation

A solvent liquidation is where the board of a company has passed a special resolution within 30 days (20 working days) before the appointment of the Liquidator that the company will be able to pay its debts on liquidation. The directors supporting the resolution must sign a certificate to that effect and state the grounds for their opinion.

Solvency Position of a Company

As determined by the criteria of section 4 of the Companies Act, a company must be able to pay its debts as they fall due; and the value of its assets must be greater in value than those of its debts.

Special resolution

Means a special resolution approved by the majority of at least 75% of the shareholders of the company, or higher if required by the company’s resolution, of those shareholders entitled to vote and voting on the question for the special resolution.

Specified Period

The 2 year period before the commencement of the liquidation of the company.

Specific charge

A lien or security interest in a specific piece of property or asset of the company, which can be distinguished from other items of property.

Statement of affairs

A document prepared by a Liquidator or Receiver on appointment setting out the affairs of the company at the date of appointment. In relation to a liquidation, this will contain details of creditor’s names and addresses, the financial position of the company at the date of liquidation, and proposals on the conduct of the liquidation, and if appropriate, a considered dated for the conclusion of the liquidation.

Statement of Realization’s and distributions

A financial statement prepared by the Liquidator of asset sales and distributions during the period of the liquidation. A financial statement of this type must be sent with the liquidator’s final report to the shareholders, creditors and the Registrar of Companies.

Status Quo

The current state of affairs, or the current position.

Statutes

Laws made by Parliament, also known as ‘Acts’.

Statutory law

Law enacted by the legislative branch of government, as distinguished from case law or common law (judge-made law).

Statutory Demand

A statutory demand is a demand made by a creditor requiring the debtor to pay a debt within 15 working days or enter into a compromise with creditors. Failure to satisfy a statutory demand is evidence of an “inability to pay debts”. Statutory demands lapse if not enforced within 6 weeks (30 working days) of last date for payment of the debt.

Subrogation

The legal right that a party has when they pay someone’s debt to recover that money from the debtor.

Summary judgement

A summary judgement is when an application is made to the Court to obtain a judgement against a debtor. Once obtained, this can speed up the process of putting a company into liquidation.

Ten Day Rule

The company has ten working days to appoint their own Liquidator following receiving a notice to liquidate the company issued by a creditor. If the matter proceeds to Court, the Court will determine the appointment following the nomination of the creditor, or will appoint the Official Assignee.

Title (to property)

Legal ownership of property.

Transaction

The definition of “transaction” under the Act is broadly defined and includes the payment of money, the transfer of assets, and also the incurring of an obligation.

Transaction at undervalue

A transaction at an undervalue can be described as a gift or a transaction in which the value received is considerably less than the true value.

Ultra vires

If a person or body acts ultra vires, they act outside the legal limits of their powers. Latin for ‘beyond the powers’.

Un-liquidated demand

A claim brought in a Court that requires the Court to decide the amount of loss suffered (such as a claim for damages resulting from negligence), because the amount of the claim can’t be worked out from some specific contract or other document. (Compare with ‘liquidated demand’.)

Unsecured creditor

An unsecured creditor is a creditor who has no security over the assets of the company in liquidation or bankruptcy.

Unsecured (debt or claim)

In bankruptcy proceedings, a claim against the debtor is unsecured if the debtor had not put up property as security (‘collateral’) for the debt, or to the extent that the value of collateral is less than the amount of the debt.

Vesting Order

An order by the Court that gives to a person, possession, control or title of property.

Vexatious

Describes an act or action taken by a party brought without any real merit, the purpose of which is to annoy or oppress the other party.

Void

If a transaction or document is void, it has no legal effect.

Voidable transaction or charge

A ‘voidable’ transaction or charge is voidable by the Liquidator if the company was insolvent at the time of entering into the charge or transaction, was undertaken within 2 years before the company entered into liquidation, and the effect of the charge or transaction provides a creditor with a preference that they would not have ordinarily achieved in the ordinary course of the liquidation.

Voluntary Administration

Effective from the 1^st November 2007, provides a possible insolvent company with the ability to compromise with creditors to pay them a portion of the debt owing to them over a period of time through a Deed of Company Arrangement “DOCA”.

Voluntary Liquidation

A voluntary liquidation is “voluntary” when the directors and shareholders voluntarily decide to place the company into liquidation, generally because the company is insolvent and has not reasonable chance of improving its financial position in the future.

Waiver

This is where a person deliberately gives up (or ‘waives’) a right.

Without prejudice

When the parties involved in a dispute have discussions or exchange documents in a genuine attempt to resolve the dispute, they often specify that the process is ‘without prejudice’, which means that it can’t be referred to in any legal action that follows.