When Your Business Is in Trouble: What Are Your Options?
Facing financial distress is one of the most difficult moments for any business owner. In New Zealand, two key pathways exist for companies in trouble: voluntary administration and liquidation. Choosing the right one can make a significant difference to your business’s future—and to the outcomes for creditors, employees, and shareholders.
What Is Voluntary Administration?
Voluntary administration is a formal process designed to give a financially distressed company a chance to restructure and survive. It involves appointing a licensed insolvency practitioner (administrator) who takes control of the company’s affairs and assesses whether it can continue trading or should be wound up.
Key Features:
- Initiated by directors, secured creditors, or the court
- Temporarily halts legal actions and enforcement by creditors
- Administrator investigates the company and presents options to creditors
- Creditors vote on the future: liquidation, deed of company arrangement (DOCA), or return to directors
Best For:
- Businesses with viable operations but short-term cash flow issues
- Companies that need breathing room to restructure debts or operations
- Situations where creditors may receive a better return than through liquidation
What Is Liquidation?
Liquidation is the process of winding up a company’s affairs, selling its assets, and distributing the proceeds to creditors. It can be voluntary (initiated by shareholders) or compulsory (ordered by the court due to insolvency).
Key Features:
- Liquidator takes control and directors’ powers cease
- Assets are sold to repay creditors in a legally defined order
- Investigations into company conduct and transactions may occur
- Company is eventually removed from the Companies Register
Best For:
- Businesses that are no longer viable or insolvent
- Situations where restructuring is not feasible or supported by creditors
- Companies with no realistic path to recovery
Comparing the Two Options
| Feature | Voluntary Administration | Liquidation |
|---|---|---|
| Goal | Rescue and restructure | Wind up and close |
| Control | Administrator takes over temporarily | Liquidator takes full control |
| Outcome | DOCA, return to directors, or liquidation | Company ceases to exist |
| Creditor Involvement | Creditors vote on future | Creditors receive distributions |
| Director Role | Limited powers, must assist | Powers cease, must cooperate |
| Asset Handling | May continue trading | Assets sold to repay debts |
Ask yourself:
- Is the business fundamentally viable with restructuring?
- Do creditors support a turnaround?
- Is there enough cash flow to sustain operations during administration?
- Are directors willing to cooperate and disclose full financials?
If the answer to these is yes, voluntary administration may offer a lifeline. If not, liquidation may be the most responsible path forward.
FAQs: Liquidation vs. Voluntary Administration in New Zealand
1. What is the main difference between liquidation and voluntary administration?
Liquidation is about closing a business and selling its assets to repay debts.
Voluntary administration is a temporary process that gives a business a chance to restructure and potentially survive.
2. Can a business continue trading during voluntary administration?
Yes, in many cases the administrator may allow trading to continue if it helps preserve value or leads to a better outcome for creditors.
3. Who decides whether a company goes into liquidation or administration?
Directors can initiate either process, but secured creditors or the court can also trigger them. In voluntary administration, creditors vote on the company’s future.
4. What is a DOCA (Deed of Company Arrangement)?
A DOCA is a formal agreement between a company and its creditors that outlines how debts will be repaid. It’s one possible outcome of voluntary administration.
5. Will liquidation affect my personal assets as a director?
Generally, no—unless you’ve given personal guarantees or breached director duties. A liquidator may investigate and take action if misconduct is found.
6. How long does voluntary administration last?
It’s a short process—usually around 25 working days—designed to quickly assess the company’s future and present options to creditors.
7. Is voluntary administration suitable for all struggling businesses?
No. It’s best for businesses that are fundamentally viable but need time to restructure. If the business has no realistic path to recovery, liquidation may be more appropriate.
Fixity’s Support for Businesses in Distress
At Fixity, we guide SMEs through both voluntary administration and liquidation. Our licensed insolvency practitioners assess your situation, engage with creditors, and help you make informed decisions that protect your business and stakeholders.
Protect your business today.
Contact Fixity for a confidential consultation.
