What is the Liquidation Surplus Account?

The Liquidation Surplus Account holds funds that have not been distributed in liquidation estates administered by the Official Assignee and private sector liquidators. The undistributed funds are held by the Public Trust and are available on application by liquidators to the Official Assignee of New Zealand.
Section 316(4) of the Companies Act 1993 states that;

“Money held in the Liquidation Surplus Account may be-

(b) Paid, subject to such conditions as the Official Assignee for New Zealand may impose, in meeting the claims of the creditors of a company in the liquidation of which the Official Assignee or any other person is the liquidator, for payment of the costs of proceedings in the liquidation after the commencement of the liquidation, legal or other expert advice, or the costs of any expert witness, where the Official Assignee for New Zealand is satisfied that it is fair and reasonable for those costs to be met out of the account”.

The Official Assignee must be satisfied that it is fair and reasonable for the costs to be met out of the account.

Applications should reflect the need for a public interest element in the proceedings such as, for example, the need to enforce duties of directors or other obligations owed by persons who might reasonably be expected to have regard to creditors or shareholders of the company; e.g. auditors who prepare reports for the benefit of shareholders who rank behind creditors.

Claims of the Creditors

The application must demonstrate that it related to the claims of the creditors of a company in liquidation.

Funding of Proceedings

The Act provides for “payment of the costs of proceedings in the liquidation after the commencement of the liquidation”.

“Proceedings” are not limited to Court proceedings.

In assessing the “funding of proceedings” the Official Assignee will consider:

• Payment in respect of costs of proceedings; and
• Where proceedings have not commenced, but are in contemplation, any costs associated with the proceedings at that stage.

In considering the merits of the application for funding of proceedings, the Official Assignee will take into consideration:

• The merits of the case;
• The likely amount that would be recovered;
• An estimate of the total cost of the proceedings;
• The proportion of the amount requested from the Liquidation Surplus Account in relation to the total cost of proceedings (where possible the Official Assignee will expect that the creditors make a contribution); and
• Whether the proceedings have a public interest element. This may be something like the need to enforce a director’s duties.

Legal or Other Expert Advice or the Costs of Any Expert Witness

The Act provides for the funding of “legal or other expert advice”.

Liquidator’s costs cannot be met from the LSA. Sometimes a liquidator will be the best expert witness and therefore they could be remunerated when acting in this capacity.

Ancillary Matters

In all applications for funding the following details must be provided;

• A list of the creditors who have filed proofs of debts, along with the amount of each proof; and
• A list of all assets realised and assets still to be realised.
   

In some circumstances claims will be determined on a staged basis and bulk sums will only be granted if there is an undertaking from those involved that they will see the matter through to completion despite any rise in costs that may occur.

Any assets that are recovered must be used to reimburse the Liquidation Surplus Account as first priority.

Making an application

An application for funding can be made out to:

Official Assignee for New Zealand
Ministry of Economic Development,
PO Box 1473,
Wellington