Immovable property (land/real property)

Security over land is taken by a mortgage.  A mortgage operates as security for a debt or obligation and does not transfer title; rather, it creates a statutory charge over the land.  To be effective against third parties and enjoy priority over competing interests, the mortgage must be in writing, properly executed by the mortgagor, and registered with Land Information New Zealand.  An unregistered mortgage may create equitable rights as between the parties, but it will generally be vulnerable to later registered interests and may be harder to enforce.  Mortgagees must comply with statutory notice requirements before exercising certain remedies, including the power of sale.

Movable property (personal property)

Security over movable property is governed principally by the Personal Property Securities Act 1999 (PPSA).  The PPSA applies broadly to any interest in personal property that secures payment or performance of an obligation, including security over goods, plant and equipment, inventory, receivables, shares, bank accounts and certain intangible rights. Examples of security interests over personal property include a General Security Agreement over property, a retention of title arrangement, and a specific security interest over an identified asset.

Under the PPSA, in order to obtain priority over competing interests, a party must perfect a security interest by either taking possession of the collateral or by registering a financing statement on the Personal Property Securities Register in respect of the collateral within the relevant time period.

Failure to perfect a PPSA security interest will not usually invalidate the security as between secured party and grantor, but perfected security interests have priority over unperfected interests.

Common issues include compliance with statutory notice periods, enforcement procedures, valuation and sale duties, together with managing competing security claims, and reputational or operational risks if the debtor’s business is trading.  All mortgagees must comply with the Property Law Act 2007, including service of a compliant default notice on the mortgagor and other relevant parties with registered interests before exercising key remedies, such as the power of sale.  Similarly, for receiverships, the Receiverships Act 1993 imposes reporting and other obligations on appointees e.g. the duty to obtain the best price reasonably obtainable at the time of sale.

In insolvency proceedings, different issues may arise depending on the process being used.  Voluntary administration imposes a moratorium on enforcement of charges and recovery of property without the administrator’s consent or leave from the court, subject to important exceptions such as a short decision-making window for secured creditors with security over the whole, or substantially the whole, of the company’s property to enforce their rights.  Liquidation, in contrast, does not prevent secured creditors from enforcing their rights against their collateral, although claims against the company are stayed until the liquidator provides his or her consent or leave is granted by the court.  In extraordinary circumstances, statutory management (explained later in this publication) can impose much broader stays, including restrictions on secured enforcement and set-off.

New Zealand has a wide variety of restructuring and insolvency tools available to creditors and debtors alike, with an emphasis on commercial pragmatism prior to any court intervention.  The principal framework is contained in the Companies Act 1993 (Companies Act) and is supported by other legislation such as the Receiverships Act 1993 and, in exceptional cases, the Corporations (Investigations and Management) Act 1989. 

Voluntary Administration

Voluntary administration is the primary corporate rescue procedure in New Zealand and is governed by Part 15A of the Companies Act 1993.  During the voluntary administration process, an administrator is appointed to assume control of the company’s affairs and financial circumstances.  The administrator can be appointed either by the Court on application by a creditor, liquidator or the Registrar of Companies, the company itself, a liquidator, or a secured creditor.  The role of the administrator is to effectively undertake an investigation into the company and to determine if a company should continue trading.  While the administrator makes this decision, the company is allowed to continue trading under the direction of the administrator.  Directors’ powers are suspended during this period, except to the extent permitted by the administrator.

The administration period culminates in a ‘watershed meeting’, which must occur within 20 working days of the administrator’s appointment.  At the watershed meeting, creditors may decide whether:

• the company should execute a Deed of Company Arrangement (or DOCA – a binding agreement between the company and its creditors setting out how a company’s affairs and assets will be managed to repay debts);
• the administration should end; or
• the company should be placed into liquidation.

The voluntary administration process is intended to be fast, with early meetings and a watershed decision, although extensions may be granted if necessary.

Creditor compromises

Part 14 of the Companies Act provides a statutory compromise procedure for creditors, otherwise known as a creditor compromise.  This enables a company that cannot, or may not, be able to pay its debts to propose a compromise to its creditors, under which these debts are deferred, reduced or varied.  The court may grant leave to a creditor or shareholder to propose a compromise and may order the company to supply information to enable the proposal.  A compromise becomes binding on all creditors if approved by at least 75% of voting creditors, regardless of whether a creditor votes in favour of the compromise or not.

Creditor compromises are often used in early situations of financial distress because it does not require the appointment of an external officeholder and allows directors to remain in control of the company. Common examples of creditor compromises include reduced payment of debts, extended payment terms, or debt-for-equity conversions.

Scheme of Arrangement

A scheme of arrangement, governed by Part 15 of the Companies Act, is an agreement between a company, its shareholders or creditors.  A scheme of arrangement is open to a company, whether it is solvent or insolvent, but generally requires court involvement and approval.

A scheme of arrangement is a useful remedy, owing to its flexibility – for example, some of the potential outcomes (of many others) under the scheme of arrangement include compromise with creditors, amalgamation of two or more companies or a reorganisation of share capital.  Once a scheme is approved by the court, it becomes binding on the relevant stakeholders in accordance with its terms.  The court may also make an order as to the issue of shares, securities or policies of any kind, the transfer or vesting of real or personal property, assets, rights, powers, interests, liabilities, contracts and engagements, the liquidation of any company, the continuation of legal proceedings, amongst other orders available under section 237(1) of the Companies Act.

Informal restructuring options

Informal restructuring procedures are typically implemented at an early stage of financial distress, by agreement with key creditors and may include standstills, covenant waivers, debt rescheduling, payment deferrals or other consensual accommodations.

A debtor in restructuring proceedings may obtain new financing through a variety of channels. New funding is usually provided by agreement with existing secured creditors (typically by taking new security if available), through administrator or receiver trading arrangements, or as part of a Deed of Company Arrangement, scheme of arrangement or creditor compromise.

The New Zealand regime does not afford any special priorities to allow a debtor to obtain new financing (such as that akin to Chapter 11 of the Bankruptcy Code in the United States). Accordingly, the ability to borrow new financing is limited – any priority for new money will depend on other creditors agreeing to voluntarily subordinate their claims, or such financing being part of a creditor compromise or scheme of arrangement.

New Zealand restructuring proceedings do not automatically release claims against non-debtor parties such as guarantors, directors, shareholders or parent companies.

There may be instances where a Deed of Company Arrangement (DOCA), creditor compromise or scheme of arrangement (each of which are discussed above at Question 3) may include third-party releases where they are necessary to the restructuring and supported by the affected creditors. They are more likely to be effective where the affected creditors vote in favour or the release forms part of a court-approved scheme within jurisdiction. Restructuring does not, in and of itself, release directors from claims for breaches of their statutory duties or liability for prior misconduct.

Creditors typically organise by class, security position and commercial interest. In larger restructurings, creditors may form creditors’ meetings, committees of inspection in liquidation, or creditor groups in administration and compromise processes.

Whether advisory fees are paid by the debtor depends on the process and agreement. Insolvency office-holder costs and expenses are generally paid from the estate in accordance with statutory priorities. Creditor committee or liquidation committee fees are not automatically payable by the debtor unless agreed, provided for in finance documents, approved as part of a restructuring instrument, or treated as proper costs of the process. In practice, major secured creditors often fund their own advisers and recover costs to the extent permitted by their security documents.

The test for insolvency comprises two components: the cashflow test (ability to pay debts as they become due in the normal course of business) and the balance sheet test (value of the company’s assets being greater than the value of its liabilities, including contingent liabilities). Both components must be satisfied for a company to be considered solvent.

In considering liquidation or voluntary administration, a company is insolvent if the company is unable to pay its debts when due (the cashflow test). The balance sheet test is relevant when considering distributions.

There is no requirement on directors or officers to open insolvency proceedings when a company becomes distressed or insolvent. Nonetheless, directors must take proper account of creditor interests when a company is insolvent or near-insolvency and must comply with their statutory duties under the Companies Act 1993. In this instance, relevant duties include the duties to act in good faith and in best interests of the company (section 131); not engage in reckless trading (section 135); and not to incur an obligation unless they believe on reasonable grounds that the company will be able to perform them (section 136).

Directors’ duties are generally owed to the company itself. Remedies available for breaches of directors’ duties include the pursuit of the recovery of funds by a creditor, shareholder (or liquidator) from a director, if the director has breached their duties in the face of the company’s insolvency (section 301 of the Companies Act); or under section 165, which allows a shareholder to bring a derivative action (with leave of the court) on behalf of the company.

Yan v Mainzeal [2023] NZSC 113 is the foremost authority on directors’ liability for breaches of their duties. Here, the Supreme Court confirmed that directors can face substantial personal exposure where they continue trading in a manner that creates serious risk to creditors or incur obligations without reasonable grounds for believing the company can perform them. Mainzeal, reinforced in subsequent case law, has led to a heightened level of judicial scrutiny against directors’ conduct, particularly in the face of insolvency.

The Government has announced its intention to reform directors’ duties under the Companies Act to ensure that directors are not discouraged from taking legitimate business risks (explained further at Question 22 below).

For companies, the primary forms of insolvency proceedings are voluntary administration (discussed at Question 3 above), liquidation, receivership and, in extreme situations, statutory management.  For individuals, the main proceedings include a no-asset procedure, Debt Repayment Order, proposals to creditors and, ultimately, declaring bankruptcy (provided for under the Insolvency Act 2006).

Liquidation

Liquidation is governed principally by Part 16 of the Companies Act 1993.  A company may be placed into liquidation by shareholder resolution, court order, or board resolution (in limited constitutional circumstances, where permitted), or by creditors at the watershed meeting in an administration.

The liquidator takes control of the company, realises assets, investigates its affairs and distributes the proceeds to creditors in accordance with the statutory order of priority.  Directors cease to control the company whilst a liquidator is appointed.  A liquidator can bring claw-back claims, investigate director conduct, and pursue claims against directors or others for breaches of their duties or for improper transactions (which are discussed later in this publication).  Unsecured creditors require consent from the liquidator or leave of the court to commence or continue proceedings against a company in liquidation.  Secured creditors sit outside the liquidation process and can realise their secured property and claim in the liquidation as an unsecured creditor for the shortfall.

Liquidations have no fixed time and can range from months to several years, depending on asset realisations, investigations and litigation.

Receivership

Receivership, governed by the Receivership Act 1993, is primarily an enforcement mechanism for secured creditors and is usually initiated by a secured creditor.  In some circumstances the Court can appoint a receiver.  The company may continue to exist and may also be in liquidation or administration at the same time as it is in receivership.

A receiver is usually appointed under the terms of a security agreement and takes control of specified assets, or sometimes the business, to realise the appointing creditor’s security.  Directors technically remain in office but their practical authority over the secured assets is displaced.  While receivers primarily represent secured creditors’ interests, they must also consider other stakeholders. The Receiverships Act provides that the court may authorise a receiver to sell property despite a mortgagee’s objection if “the sale… is in the interests of the grantor and the grantor’s creditors; and will not substantially prejudice the interests of the mortgagee.” This provision demonstrates the balancing of interests that occurs in receivership cases.

In terms of timing, the receiver must file a first report within two months’ of appointment and subsequent reports every six months, or upon completion.  When the assets are sold and proceeds distributed, the receiver resigns and files a final report.  Receiverships often last between a few months and over a year, depending on asset complexity and sale strategy.

Statutory management

Statutory management is governed by the Corporations (Investigations and Management) Act 1989, and is a “last resort” remedy which can only be invoked by the Crown, on the advice of the Minister of Consumer and Market Affairs and on the recommendation of the Financial Markets Authority.

Statutory management is only invoked where there is significant public interest concern, often involving alleged fraud, recklessness or serious mismanagement.  Recent examples of the use of statutory management include the collapse of Du Val Group in 2024, a New Zealand property developer owing more than NZD $300 million to investors, which remains in statutory management as at the date of this publication; as well as several entities associated with the collapse of South Canterbury Finance in 2010, which remained under statutory management for four years, ultimately requiring a NZD $1.5 billion dollar government bailout.

A statutory manager has wide powers, including the ability to suspend the payment of debts or the performance of any obligations (in part or in full), and can usurp other insolvency processes, including any creditor and shareholder claims.  There is no time limit on how long a company can remain under statutory management.

Voluntary administration

A moratorium is immediately imposed when a company enters voluntary administration. This stops most legal actions and debt enforcement against the company without the permission of the administrator or the Court.  During the administration period, creditors generally cannot enforce charges, take possession of company assets, or act on guarantees given.  However, a secured creditor with a general security interest can still enforce their rights, but only if they act within ten working days of the administrator’s appointment.

Liquidation

In liquidation, proceedings against the company and enforcement against company property are generally restricted, but secured creditors generally retain the ability to realise collateral outside the scope of the liquidation that they hold security over, subject to specific statutory rules and any court orders.

Receivership

Unlike voluntary administration, receivership does not impose a general moratorium, and other creditors may continue enforcement action subject to the secured creditor’s priority rights.  Receivership affects control and realisation of secured assets, but unsecured creditors can still consider liquidation, administration or other court processes.

Statutory management

Statutory management imposes a much broader stay, including restrictions on proceedings, enforcement, set-off, liquidation, administration and receivership (the reasons for which are discussed in further detail above at Question 8).

Extraterritorial effects

Moratoria issued in the New Zealand jurisdiction do not automatically bind foreign courts as a matter of foreign law.  Extraterritorial practical effect usually depends on recognition or assistance from the foreign court, including under cross-border insolvency principles and any relevant legislation.

Voluntary administration

In voluntary administration, creditors participate in statutory meetings and vote at the watershed meeting. The principal reorganisation plan is a Deed of Company Arrangement (DOCA) (discussed above at Questions 3 and 4).  Once a DOCA is approved, on a vote by the majority of creditors, the terms will become binding on other unsecured creditors.

Liquidation

In liquidation, creditors file claims with the liquidator, provide supporting evidence, attend creditor meetings where convened, vote on resolutions and may seek court directions or challenge liquidator decisions.  Committees of inspection may be appointed in appropriate cases.  They must follow prescribed statutory procedures which include submitting claims in the correct form, meeting specified deadlines, and attending meetings to vote on key decisions regarding the liquidation process.

Creditor compromises

In a creditor compromise, creditors vote in ‘classes’ (eg secured creditors) on the proposed compromise. The proposal must include prescribed information so creditors can assess its effect.  If the required majorities approve, the compromise binds creditors in the relevant classes.

Schemes of arrangement

In a scheme of arrangement, the court supervises the process.  The court may order meetings, consider class composition and fairness, and approve the arrangement if statutory and equitable requirements are satisfied.  Once sanctioned and implemented, the scheme binds affected parties according to its terms.

On the insolvency of a debtor, creditors and stakeholders are ranked according to their statutory priority, subject to any valid security interests. There is no general super-priority for new restructuring finance equivalent to US debtor-in-possession financing. Contractual subordination and intercreditor arrangements are generally recognised, subject to statutory priority rules, insolvency policy and the terms of the relevant arrangement.

Relative to other parties, secured creditors generally have priority over collateral subject to their security interest – which is determined according to the priority rules under the Personal Property Securities Act 1999 (as discussed above at Question 1 above). Secured creditors are followed by preferential creditors (including liquidators’ costs, employee claims, and certain government claims), and finally unsecured creditors who share proportionally in any remaining assets.

In receivership, certain preferential claims can have priority for accounts receivable and inventory, after the receiver’s proper costs and applicable purchase money security interests. The Receiverships Act 1993, under section 30A, explicitly recognizes the concept of subordinate security interests. Under this provision, a receiver’s sale can extinguish subordinate security interests in the sold property, whilst senior security interests are preserved.

A liquidator has the power (under the Companies Act 1993) to apply to the court to have a transaction set aside.  Examples of such transactions include:

• Voidable transactions – those that are entered into when the company was made insolvent within a six month period (or two years for a related party) before an application for liquidation is made, and which would allow the creditor to receive more than what it would otherwise receive (or would be likely to receive) in the liquidation of the company.
• Voidable charges – where charges were given whilst the company was insolvent (within a six month period (or two years for a related party) of the liquidation application).
• Transactions at an undervalue – where the amount from a creditor can be recovered by the liquidator for the difference in value given by the company and the value received by the company in a transaction that occurred whilst the company was insolvent (within two years before the liquidation application is made).
• Dispositions prejudicial to creditors – dispositions that are made without a reasonably equivalent value being given in return to the company, coupled with the intention to defeat creditors. This has a six-year limitation period from the point in time the distribution was made.
• Unlawful distributions – a court may set aside a transaction when it considers it is just and equitable to do so. There is no requirement for the company to have been insolvent at the time the distribution was made.  Factors that the court will consider include conduct of the director and the rationale for the distribution.
• Distributions made whilst the company was insolvent – this has a six-year limitation period from the point in time when the distribution was made.

A creditor may have statutory defences, including where it acted in good faith, gave value, had no reasonable grounds to suspect insolvency and altered its position in reliance on the transaction.  A similar defence of good faith is open to shareholders who were unaware that a company failed to meet the solvency test at the time of the transaction.

If a challenge succeeds, the court may set aside the transaction, order repayment, restore property, distribute value amongst creditors, or require compensation.  The transaction can be automatically set aside if no objection is raised within the specified timeframe, or a court can order the return of property or payment of compensation to the liquidator or assignee for distribution to creditors.  Third parties may be affected, although bona fide purchasers and parties with statutory defences may be protected.

Contracts during insolvency and restructuring processes are generally preserved, subject to its relevant statutory regime.  Each statutory regime has distinct provisions that will either enable, modify or suspend the performance of pre-existing contractual duties.  These regimes, we consider, strike a necessary balance between reinforcing freedom for parties to contract on their own terms, as well as ensuring confidence for debtors and creditors alike during the restructuring and insolvency process.

Pre-existing contracts – liquidation

The Companies Act 1993 (section 248) is the primary framework for governing liquidation processes in New Zealand.  Unless there is an ipso facto clause, existing contracts are not automatically terminated by the event of liquidation, but the ability to enforce contractual rights against a liquidated company are heavily constrained.  For example, section 248 prevents any party from commencing legal proceedings or enforcing a contractual right or remedy against a company.  This is not an absolute prohibition, as section 248 grants the liquidator or the Court a discretion to permit enforcement.  A liquidator may choose to cause the company to repudiate the contract, leaving the counterparty having to claim in the liquidation for its loss.

The Companies Act 1993 Liquidation Regulations 1994 (rule 10) allows for the continuation of periodical payments (including rent) to be claimed in a pre-existing contract when liquidation commences at any time other than at the beginning of a specified period.  Periodic payments are treated as accruing daily up to the point of liquidation, with lessors of the property retaining the right to claim rent accruing on or after the commencement of liquidation.

A liquidator may disclaim onerous property (subject to receiving notice from an opposing party under section 270) under section 269 of the Companies Act.  ‘Onerous property’ includes unprofitable contracts, unsaleable or not readily saleable property that may give rise to a liability to pay money or performance an onerous act.  A disclaimer has the effect of ending the rights, interests or liabilities of the company in relation to the property disclaimed from the date of disclaimer.  A disclaimer does not affect the rights or liabilities of any other person except insofar as necessary to release the company from liability.  A person suffering loss or damage because of a disclaimer may make a claim as a creditor in the liquidation.

Pre-existing contracts – voluntary administration

Similarly, any pre-existing contract is not automatically terminated should a company enter voluntary administration and the administrator can choose whether to continue with the performance or to repudiate the contract.  Also, like liquidation, sections 239ABC-ABJ of the Companies Act 1993 prescribes a broad moratorium of actions which prevent creditors from undertaking the enforcement of charges, recovery of property or the commencement / continuation of proceedings against a company during its administration.

Should a company elect to enter into a Deed of Company Arrangement (DOCA) the Companies (Voluntary Administrations) Regulations 2007 explicitly provide that any existing contractual debts are discharged when the creditor receives their entitlement as stipulated under the DOCA.

Section 239ADI of the Companies Act provides that administrators remain personally liable for rent and other debts (such as salaries and wages) due under a contract made before the administration began and relating to the use, possession or occupation of property by a company.

Pre-existing contracts – receivership

Much like liquidation and voluntary administration, pre-existing contracts (prior to the appointment of a receiver) are not automatically terminated after the receivership is brought to an end (subject to an ipso facto clause in the relevant contract).  A receiver has discretion whether to allow a company to continue to perform its contractual obligations under pre-existing contracts or repudiate the contract, which will leave counterparties having to claim against the debtor company.

The continuity of certain contracts is provided for in section 32 of the Receiverships Act 1993.  This provides that receivers are personally liable for contracts for the payment of wages or a salary or rent unless the contract is terminated within 14 days of appointment.  A receiver is not normally personally liable for pre-receivership contracts, unless they are deemed to act in bad faith or they contract separately to assume personal liability for those pre-existing contracts.  

Pre-existing contracts – statutory management

Statutory managers are expressly empowered under s 44 of the Corporations (Investigation and Management) Act 1989 to suspend any pre-existing payment obligations without this amounting to a breach or repudiation of the contract.  This provides the necessary security for statutory managers to confidently manage the affairs of a company without incurring further liability for the repudiation or breach of a contract.

Much like voluntary administration, the enforcement of retention of title clauses or right of set-off is expressly prohibited against companies under statutory management under the Corporations (Investigations and Management) Act 1989.

Ipso facto clauses

An ipso facto clause – a clause which automatically terminates or modifies a contract upon the occurrence of an insolvency event – is still subject to the relevant statutory regime.  As discussed above, the moratorium on enforcing pre-existing contractual provisions during administration may allow the administrator to continue contracts that benefit the company.  In contrast, in receivership, a receiver may elect to continue or repudiate any pre-existing contract.

Conditions applying to the sale of assets / business

Whether property sold during a restructuring or insolvency is acquired with the confidence it is free and clear of any claims or liabilities can depend on various considerations.  For example, it may depend on the satisfaction of conditions applicable to the sale of assets or an entire business which, unsurprisingly, vary significantly according to the type of restructuring or insolvency process an entity is undergoing.

The Receiverships Act 1993 offers the most straightforward route for acquiring assets.  Under s 30A of the Act, subordinate security interests are automatically extinguished when a receiver disposes of any property.  However, where mortgagee consent is required for the sale of property in receivership, the receiver must obtain consent from all mortgagees to give effect to a sale that is free and clear of any claims or liabilities.  Failing this, a receiver may obtain court approval under s 17 for the sale of the property, without the consent of the mortgagee.  This is a rare example of when security may be released without creditor consent.

In contrast, where an administrator or liquidator sells property, there is no automatic extinguishing of security interests in the sale of property nor any ability to release security without creditor consent.  Although (as discussed at Question 13) a secured creditor faces limitations on commencing legal proceedings or exercising their rights over property during the liquidation or administration process, this does not preclude the right of the secured creditor to take possession of or otherwise deal with property over which they have a charge.  Accordingly, there is no guarantee that the property is free and clear of any claims and liabilities upon its sale.  

Credit bidding

Credit bidding – where a secured creditor uses the value of its debt as currency in the sale of a debtor’s assets – is not a formalised concept under New Zealand law.  Regulation 22 of the Companies Act 1993 Liquidation Regulations 1994 seems to tacitly approve of credit bidding as a concept.  This allows for a secured creditor to use the value of the amount owed to them to offset the overall amount owed.  They may then claim as an unsecured creditor for any remaining amount of the balance after the amount owed to them is subtracted.

Pre-packaged sales 

Pre-packaged sales, like credit bidding, is not a formalised concept in New Zealand law.  Although, a creditors’ compromise can be seen to embody the spirit of a pre-packaged sale.  A group of creditors may pre-agree to a restructuring to be formalised in a certain manner, which may then be the given effect by achieving the requisite supermajority (75%) of votes in favour by the creditors.

A DOCA, proposed by an administrator or director / creditor also embodies an element of pre-packaging.  Parties may discuss (but not formalise) the terms of a DOCA, which are then formalised at the second watershed meeting of creditors.  The terms of the DOCA may include to the sale of property at an agreed price and to an order of certain parties.

However, pre-packaged sales are inherently more likely to clash with the statutory duties of liquidators and administrators, being duties of independence and duty to sell property for the best price reasonably obtainable at the time of sale.  Whilst strictly not impossible, pre-packaged sales are more likely to be scrutinized from an administrator’s or liquidator’s perspective.

The Companies Act 1993 provides director duties and liabilities. A high standard of behaviour is incumbent on directors.  A director (in addition to a person appointed in that position) is defined under section 126 of the Act and includes a person who(se):

• directions or instructions a director may be required or is accustomed to act;
• directions or instructions the board of a company may be required or accustomed to act; and
• exercises or is entitled to exercises or controls or is entitled to control the exercise of powers which, apart from the constitution of the company, would fall to be exercised by the board.

There is scope for directors to incur liability for the debts of an insolvent debtor.  This may be achieved by breach of any of the following director duties and liabilities under the Act:

• Section 131 – a director has a duty to act in good faith and in the best interests of the company.
• Section 133 – a director must exercise their powers for a proper purpose.
• Section 135 – a director has a duty to the company not to trade recklessly. Additionally, a director must not agree, cause or allow the business of the company to be carried on in a way likely to create a substantial risk of serious loss to the company’s creditors.  This section seeks to penalise the taking of illegitimate business risks.
• Section 136 – a director cannot take on an obligation unless the director believes on reasonable grounds at the time that the company can perform the obligation when required to do so. The director’s belief at the time is assessed on a subjective basis, whereas the decision to incur an obligation is assessed on an objective (reasonable) basis.
• Section 137 – a director cannot breach its duty of care, which the courts have determined includes a duty to the company to protect the interests of creditors in approaching solvency.
• Section 138A – actions taken in bad faith that is not in the best interests of the company or knowing that the actions will cause serious loss to the company.

Additional common law duties and liabilities include:

• Breach of fiduciary duties – courts have held that the duty to the company to not deal with company assets during insolvency remains.
• Failure to consider creditor interests – the courts have consistently recognized the responsibility of directors to take account of the interests of creditors where a company is insolvent or near-insolvent.

Either the company itself or a shareholder on behalf of the company can get leave from the Court to bring proceedings under section 165 of the Act.  Similarly, under section 301 of the Act, the court allows a liquidator, creditor or shareholder to bring an action against the directors of a company (among others) for acts done negligently, in default or in breach of the director’s duty or trust in relation to the company.  The court may then order that person to repay, restore or contribute towards the money or property at a rate it sees fit.

Section 162 of the Act allows companies, subject to board approval and their constitution, to provide insurance coverage to directors and employees for matters arising in the course of their duties.  However, under section 162, insurance will not cover criminal conduct or any breach of director or fiduciary duties.

New Zealand does not have any legislative provisions that release directors or other stakeholders from liability for previous actions and decisions. This forms a small element of New Zealand’s inherently creditor-friendly jurisdiction.

Section 157(3) of the Companies Act 1993 explicitly states that a person who held office as a director remains liable under the provisions of the Act that impose liabilities on directors in relation to acts, omissions and decisions made whilst in their capacity as a director. As stated at Question 15 above, the courts have consistently recognised the responsibility of directors to account for the interests of creditors where a company is insolvent or near-insolvent.

Directors remain broadly accountable for their actions in New Zealand. Directors’ liability can be sought across the contexts of various director duties under the Companies Act 1993.

The High Court can recognise foreign proceedings over a local debtor. This power is found under section 8 of the Insolvency (Cross-border) Act 2006 (ICBA), which allows the High Court to, if it thinks fit, act in aid of and be auxiliary to an overseas court that has jurisdiction in relation to that insolvency proceeding.

To achieve recognition of foreign insolvency proceedings in New Zealand, a foreign representative (as defined under Schedule 1 of the ICBA) must follow the procedure outlined in Rule 24.56 of the High Court Rules 2016. For brevity, the criteria under rule 24.56 have not been described.

The foreign proceeding in question must then meet the test pursuant to Article 17, Schedule 1 of the ICBA. The definitions of “proceeding” and “representative” must be met under Articles 2(a) and 2(d); have supporting documentation under Article 15(2); not be manifestly contrary to the public policy of New Zealand under Article 6; and be submitted to the High Court.

The Centre of Main Interests (COMI) underpins how the Court recognises proceedings. A proceeding can be classified as a ‘foreign main proceeding’, meaning a foreign proceeding taking place in the State where the debtor has its COMI; or a ‘foreign non-main proceeding’, meaning means a foreign proceeding, other than a foreign main proceeding, taking place in a State where the debtor merely has an establishment in that foreign state, rather than its COMI. The type of recognition by the Court has tangible flow-on effects such as the centralization and streamlining of proceedings across jurisdictions, as well as the predictability of the process for creditors.

The UNCITRAL Model Law on Cross Border Insolvency has been adopted (with minor alterations) in New Zealand through Schedule 1 of the ICBA and informs the various test mentioned above. As of the date of this publication, New Zealand has not adopted nor indicated any intention to adopt the UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments. New Zealand is evidently open to adopting international insolvency standards. However, it remains to be seen whether future legislative developments, an evolving regulatory environment, changing government policy agendas, recognition by the courts in case law or a combination of all the above will provide the necessary impetus for officially adopting the Model Law on Recognition and Enforcement of Insolvency-Related Judgments.

N/A.

Debtors incorporated elsewhere can enter restructuring or insolvency proceedings in New Zealand. Under section 342 of the Companies Act, an application may be made to the court for the liquidation of an overseas company under New Zealand law. This provision is inherently broad and allows for liquidation of an overseas company to proceed irrespective of whether the company is incorporated under the relevant Part of the Act; has given notice of intention to cease business in New Zealand; has objected to the ceasing of business in New Zealand; or has ever been dissolved under the laws of another country.

New Zealand has few restrictions on entering restructuring or insolvency proceedings in its jurisdiction. Any application for the liquidation of an overseas company must follow the process of liquidation under Part 16 of the Act, subject to the modifications and exclusions set out in Schedule 9. These contain procedural requirements or limitations that may restrict what liquidation applications proceed in New Zealand. However, despite these, the ambit for overseas liquidation proceedings remains broadly applicable.

The most significant cross-border relationship is with Australia. The adoption of mutual legislation and regulatory instruments, such as the Trans-Tasman Proceedings Act 2010 and the Model Law on Cross-Border Insolvency suggests the volume and significance of cross-border disputes with Australia warrants distinct legal treatment relative to that of New Zealand’s other international counterparts.

Groups of companies are not automatically treated as a single group in restructuring or insolvency. The starting point remains separate legal personality. This prevents creditors from gaining access to the assets of other companies in order to satisfy the debts owed to them.

However, this starting point is not absolute and courts may facilitate coordinated insolvency proceedings with multiple companies where separate treatment would produce inefficient or unfair outcomes. For example, section 271 allows for the pooling of assets of related companies in a liquidation. In voluntary administration, separate administration are generally commenced for each company, but the same administrator is appointed across entities and the administrations are coordinated. Sections 239AL and 239AER empower the court to allow for joint meetings of creditors and to order a single administration for related companies, respectively. It is up to the courts to assess whether a group of companies are ‘related companies’ for the purposes of these sections.

As at the date of this publication, New Zealand has not yet passed a law, nor has it publicly expressed any interest in, adopting the UNCITRAL Model Law on Enterprise Group Insolvency.  As discussed in further detail at Question 17 above, New Zealand is evidently open to adopting international insolvency standards, particularly when it comes to facilitating cross-border cooperation and keeping up with international best practice.

Review of the Companies Act 1993

The Government’s review of the Companies Act 1993, first announced in August 2024, is the primary reform to the restructuring and insolvency regimes in New Zealand.

The review is intended to modernise and simplify New Zealand’s company law framework to make it easier to conduct business.  It is split into two phases:

Phase One – which introduced a suite of policy initiatives principally aimed at corporate governance reform.  Broadly speaking, these initiatives are intended to simplify provisions the Government perceives as outdated or inefficient, whilst addressing poor business practices.  In the context of restructuring and insolvency, Phase One proposes to adopt the recommendations of the Insolvency Working Group, which was formed in 2015 to propose potential reforms to the Companies Act.  Examples of proposed reforms include:

• removing the need to go to Court when not required;
• reducing the period during which unrelated party creditors can be required to pay back amounts they received from a business being liquidated from two years to six months; and
• extending the pre-liquidation “claw-back” period during which transactions with related parties may be set aside when a company is insolvent from two to four years.

It is hoped that these reforms will improve creditor outcomes and enhance efficiency of formal restructuring and insolvency processes for debtors and creditors alike.

Phase Two – although yet to be formally announced, Phase Two is expected to consider directors’ duties and liabilities, alongside broader enforcement and deterrence mechanisms.  This can be seen as a legislative response to the Supreme Court’s decision in Yan v Mainzeal [2023] NZSC 113, where the Court tightened the framework under the Companies Act governing directors’ duties.  Since Mainzeal, the courts have enhanced their scrutiny of directors in distressed situations, and reinforced that directors who allow trading to continue without a proper basis for meeting new obligations face real personal exposure.  In practice, that has increased the premium on contemporaneous financial information, careful board processes and obtaining early specialist advice.  The Phase Two reforms are intended to ease concerns from the business community about any “chilling effect” in the wake of Mainzeal, and its subsequent application by the courts, by ensuring that directors are not discouraged from taking “legitimate business risks”.

At the date of this publication, the Government is yet to announce detailed policy proposals for the Phase Two reforms, which are expected to arrive sometime later in 2026.

Reforms to the High Court Rules 2016

The High Court Rules 2016, New Zealand’s core legislation governing judicial procedure, underwent foundational changes in 2025.

A core part of these changes, among others, is the establishment of the Auckland High Court’s dedicated ‘Commercial List’, which came into operation in October 2025. Parties to commercial disputes of no less than $1 million may elect to be placed on the Commercial List, which operates alongside standard High Court proceedings.  Although not strictly related to restructuring and insolvency per se, it is hoped that the establishment of the Commercial List will improve efficiency by streamlining proceedings through closer case management, shorter interlocutory timetables and earlier hearing dates for substantial commercial disputes.  In a recent environment of sustained insolvency and restructuring activity in New Zealand, these procedural changes may assist in improving the speed and effectiveness of court-supervised outcomes in this area.

New Zealand has always been considered a moderately creditor-friendly jurisdiction, particularly for secured creditors. Creditors can largely rely on legislation such as the Personal Property Securities Act 1999 (for secured creditors) or the Property Law Act 2007 (discussed in further detail at Question 1 above) or the Companies Act 1993 (discussed at Question 3 above), which establish a wide range of procedures and remedies for creditors to enforce their rights. Once a company is insolvent, New Zealand company law obliges creditors to consider creditor interests.

In saying that, New Zealand’s voluntary restructuring processes assist debtors to facilitate a restructure outside of formal insolvency.

Sociopolitical factors have given rise to preference for certain stakeholders in restructurings and / or insolvencies. The Employment Relations Act 2000 has various protections for employees affected by a business restructuring which recognizes the inherent imbalance in an employment relationship.

New Zealand has, historically speaking, favoured a laissez-faire approach to restructuring and insolvency, with limited judicial interventions unless necessary. However, recent examples of increased sociopolitical pressures show that the courts and in extraordinary cases, the Government, are willing to exert additional influence in restructurings and insolvencies. The 2024 collapse of the Du Val Group, a high-profile New Zealand property developer owing more than $250 million in debt, forced the government to make the rare move of appointing a statutory manager to oversee the repayment of debts to creditors and investors. Prior to that, the next-most recent example of government intervention for distressed businesses was during the high-profile collapse of South Canterbury Finance in 2010. The government intervened to place South Canterbury Finance into statutory management, eventually paying out $1.775 billion, equating to $405 per person in New Zealand, to creditors and investors affected by the company’s collapse. Although extraordinarily rare, the government is seemingly willing and able to intervene in the affairs of distressed businesses where the business in question is large enough to warrant public interest.

In recent years we have also seen unprecedented intervention by the New Zealand government in response to extraordinary nationwide economic crises. The COVID-19 pandemic and the widespread damage caused by Cyclone Gabrielle forced the New Zealand government to assist ailing businesses. The COVID-19 Response (Management Measures) Legislation Act 2021 provided a suite of provisions that included, among other things, a business debt hibernation scheme for affected entities; wage subsidies to maintain employment; or a resurgence support payment for businesses experiencing a 30% drop or more in revenue due to the pandemic.

Using the above examples, we can see that the New Zealand government takes a principled approach to intervening in the affairs of distressed business. Through its actions, the government has seemingly set a precedent to intervene only during extraordinary economic crises – both at a local and national level.

Any barriers to efficient and effective restructurings and insolvencies are general barriers applied across other areas of law. For example, a major barrier is the complexity of the legal framework covering restructurings and insolvencies and the general requirement for a liquidator or receiver to confer with the court consistently. This may be seen to slow the restructuring or insolvency process down; however, this must be balanced with the need for high quality personnel and necessary court approval.

New Zealand’s relatively small economy creates practical constraints. Many distressed businesses cannot justify lengthy administration processes, have limited access to turnaround capital, and cannot absorb significant professional costs.

The requirements to become a licensed insolvency practitioner in New Zealand may be regarded by some as particularly onerous. Whilst the Insolvency Practitioners Regulation Act 2019 provides the standards for integrity and ability expected of insolvency practitioners and the wider industry, these standards may deter individuals from otherwise pursuing or continuing to practise in the industry.