WHAT TO DO IF YOUR BUSINESS IS LOSING MONEY

If your business is losing money, it might be about to fail. Sometimes things just do not work out.  Whether it is another COVID-19 business demise, global pandemic causing seismic ripples and a wave of destruction, a supplier not paying you, your tax debt got too high, or you just cannot pay your bills you need to take action.  There is the risk of personal liability for company directors and deemed (shadow) directors if you continue to trade insolvent. There are several options for you.

• Analyse if you can get COVID-19 wage subsidies which help employers and small business owners with a reduced level of financial support;
• Talking to the trusted financial advisers at the Mortgage Rescue team who can diagnose your situation and see if they can raise finance to help your cash flow needs
• Prepare a new business plan to establish a way out and consider ways to inject equity funds in if your business can realistically be saved;
• Appoint your own liquidator to stop the burden of the phone ringing and end the pain;
• Do nothing and have a liquidator appointed for you by the Inland Revenue Department or another creditor you owe money to.

COVID-19 Business Distress – If your business is losing money

If your business is struggling due to COVID-19 then you are not alone.  There are several measures announced on 3 April 2020 to help you:

• giving directors of companies facing significant liquidity problems because of COVID-19 a ‘safe harbour’ from insolvency duties under the Companies Act
• enabling businesses affected by COVID-19 to place existing debts into hibernation until they are able to start trading normally again
• giving the Registrar of Companies the power to temporarily extend deadlines imposed on companies, incorporated societies, charitable trusts and other entities under legislation
• giving temporary relief for entities that are unable to comply with requirements in their constitutions or rules because of COVID-19.

Minister Kris Fa’afoi says “while they will help increase certainty and provide practical assistance to business owners and directors, the changes must not be seen as a workaround for obligations to creditors and the responsibility of directors to act in good faith.”

The reality is thousands of businesses go into liquidation in New Zealand every year. Sometimes your business just does not have enough cashflow. Instead of having a creditor issue a statutory demand which if not defended causes the potential of a predatory liquidator making your life tough, you can beat them to the crunch.

Liquidation usually occurs when a company becomes insolvent (unable to pay its debts as they fall due). The process involves appointing a Liquidator who will then take the appropriate steps to make the company solvent again or bring the business to an end.  Feel free to discuss the process with us. Often the best decision is to press the reset button and appoint a Liquidator sympathetic to your situation, that appreciates the efforts you have made to try to make things work, but understands and follows their duties under the Companies Act 1993.

If you get served a statutory demand

This is serious.  Do not throw it out or ignore it.  You need to take action. This means the person you owe money to (creditor) has petitioned the court to liquidate your company.  Now you just have ten working days to appoint your own Liquidator (or enter into Voluntary Administration). After the ten working days has expired then your Company must either:

1. settle with the creditor; or 
2. Have a court appointed Liquidator that the creditor has nominated to help them retrieve the money off you.

This is why it is crucial to control your own destiny as much as possible. Most Liquidators are appointed by the shareholders.

Is your family home used as security or collateral for your business?

Get urgent help if your home is used as security for your business. If you’ve taken loans with your house being used for business, you may need urgent mortgage help.