Did you know that in certain cases, the liquidator of a company can lay claim to assets held by other companies within your group? This article will shed light on when a liquidator can make such claims and provide strategies to bolster your defense against this threat.

When Can a Liquidator Lay Claim to Group Assets?

Under New Zealand company law, each company is considered a separate legal entity. However, according to section 271 of the Companies Act, courts have the authority to consolidate the assets of related companies during liquidation proceedings. This means that a non-liquidated company within the group may become liable for claims against the liquidated company.

Your companies are deemed related if you hold the majority of shares in both entities. So, when will a court order asset pooling? Section 272 of the Act outlines the criteria for such orders, including factors like:

– The involvement of the related company in the management of the liquidated company.

– The related company’s conduct towards the creditors of the liquidated company.

– The extent to which the related company’s actions contributed to the liquidation circumstances.

– Other relevant considerations deemed fit by the court.

Instances of Pooling Orders

Courts have issued pooling orders based on various factors, such as:

– Companies operating as one entity, with shared management.

– Inter-company financial transactions and borrowing.

– Common directors across related companies.

– Confusion among creditors regarding contractual agreements.

Protective Measures and Recommendations

To mitigate the risk of asset pooling, consider the following strategies:

– Utilize a trading trust to own group assets, as trusts are not subject to pooling regulations.

– Operate each company independently, with distinct management structures and business models.

– Maintain separate, well-documented financial records and bank accounts for each entity.

– Ensure current and detailed documentation for inter-company agreements and transactions.

– Pay fair market rates for inter-group transactions to demonstrate transparency.

– Diversify directors across companies to avoid conflicts of interest.

– Consult with legal and financial advisors to explore additional tailored solutions for your business.

By implementing these proactive measures and seeking professional guidance, you can safeguard your assets against liquidation risks and ensure the integrity of your business structure.