Technical Terms & Definitions

TERMDEFINITION
ActionA proceeding in a Court (usually the high court) where a person seeks a Court Order for the enforcement of that person's or company's rights.
Address for ServiceRequired by companies registered under the Companies Act 1993. It is the address at which legal documents to the company must be served at. This can be found on the Companies Office Website.
AdjournmentSuspension of legal proceedings to another time or place.
AffidavitA statement by a person in which the person swears that to the best of his or her knowledge, the facts in question are true. An affidavit is sworn before a Justice of the Peace, Lawyer or some other judicial officer who can administer oaths, usually a lawyer.
AgentA person who has received, usually by appointment, the power to act on behalf of another, i.e. a liquidator is the agent of the company.
ApplicationThe act of making a request, usually to the Court. E.g. an application to have a company placed in liquidation or be wound up.
AppointmentThe act of designating, or the acquisition of responsibility or position. E.g. the shareholders of a company can appoint a person(s) to act as Liquidator(s) of a company.
ArbitrationA formal dispute resolution mechanism, whereby an independent neutral third party is appointed to hear and consider the merits of the dispute, and who renders a final and binding decision called an award. This is usually done outside of The Courts. The procedure is governed by the Arbitration Act 1996.
Arm's LengthA transaction with a person who is an independent third party.
ArrearsThe amount of money by which an obligation is overdue.
AssetA object, chattel, resource or item or piece of property owned and controlled by a person or company. An asset can be intangible (i.e. not physical) such as goodwill or intellectual property rights.
AssignTo give or to transfer an asset (or liability) to someone else.
BailiffA person who is appointed under law to act or assist any other person to repossess or seize items pursuant to conditions set out in various Acts.
BankruptA bankrupt is a person whom a bankruptcy order has been made by the Court following an act of bankruptcy. The order signifies that the individual is unable to pay their debts and deprives them of their assets apart from small items such as tools of trade, etc. The remaining assets are then realised for distribution among the creditors.
BeneficiaryThe person who is in receipt, or will be in receipt, of some asset. E.g. a person can make a will naming someone as beneficiary of their estate.
Bill of ExchangeA legal document, such as a cheque, where one person in writing specifies that a third party will pay a person a specific sum of money at a specific time, or upon demand.
Bona FideA Latin term meaning an act was done honestly and in good faith.
Case LawCourt decisions that act as precedents in the interpretation of the Act(s). Sometimes the rule is not in any legislation or Act of Parliament, but can be found as a principle of law established by a judge in some recorded case(s).
CaveatA legal notice lodged with the appropriate Court or authority to prevent further steps being taken in certain processes e.g. a person with a legal interest in a particular section of land may lodge a caveat over the title to prevent the land from being transferred to any other party.
ChargeA charge over the company?s assets will be in the form of either a Debenture, Mortgage or chattel security and must be registered within 30 days. Exceptions are Hire Purchase on a motor vehicle and negotiable instruments to secure payment of book debts. Charges are void against a Liquidator and creditors if not registered.
ChattelThe right of property in intangible things which are incapable of being taken into physical possession, but that are enforceable through legal or Court action, such as debts, insurance claims, shares in a company, pensions and salaries.
CollateralAssets that are pledged by a borrower and forfeited if the terms of lending are not followed.
Company GuaranteeA company guarantee is where a company guarantees the debt of another company or person.
Completion DateThat date on which the transfer of title is to be made. Commonly used in Agreements for Sale & purchase.
Compromises with CreditorsA voluntary arrangement with creditors following a formal proposal setting out the term and effects of the proposal and calling a meeting of creditors to vote on the proposal. The compromise requires a 75% in value and a majority in number support of creditors voting. (i.e. Deed of Company Arrangement)
ConsiderationRefers to money or something of value in exchange for acquiring some goods or services or other interest in an asset.
Contingency FeeThat fee which a person is entitled to per an agreement upon the successful completion of some action. For example, a lawyer can take on an action for, say, 25% of the proceeds which he would only be entitled to if the action is successful. Currently there is some controversy in New Zealand over whether it is ethical for lawyers to undertake work on this basis.
ContractAn agreement between parties, where each party has obligations. A valid contract must have three basic elements; an offer, an acceptance of that offer and consideration.
ConveyanceThat act which transfers property from one person to another.
CreditorThat person who has a claim, preferred, secured or unsecured. It includes contingent claims and claims for an uncertain amount that is owed to them.
Creditors Claim FormsThese now replace Proofs of Debt. Claims against a company in liquidation can be made for present or future, certain or contingent debt and can be an ascertained debt or a liability for damages. Unsecured creditors? claims must be in the prescribed form and contain full particulars and identify any documents that evidence or substantiate the claim. The penalty for making a False Claim is imprisonment not exceeding 5 years or fine not exceeding $200,000.
CrystallizationThat point in time where a contract or agreement triggers certain clauses in that contract. For example, when a debenture holder appoints a receiver pursuant to its debenture, all the assets of the company in question, that are not secured by other creditors, are captured by that debenture.
DamagesCash compensation awarded by a Court to offset losses or suffering caused by another person's negligence.
DebentureA debenture is a form of mortgage over the assets of a company. These can be either or both fixed and floating charges. It normally includes a provision for an appointment of receivers or receivers and managers. A debenture must be registered at the Registrar within 30 days of creation for it not to be regarded as voidable.
DebtorA person who owes money, goods or services to another person or company.
Deed of Company Arrangement (DOCA)A binding compromise between a company and its creditors that allows the company to pay its debts off over a certain period of time.
DefaultFailure to pay or otherwise perform obligations under a contract when it falls due.
DischargeTo cancel or relieve a person of an obligation, debt or responsibility.
DisclaimThe act of denying, refusing, renouncing or repudiating an interest that one might have in some item.
DissolutionThe act of ending, terminating or winding up of a company or state of affairs (see Removal from Register).
DistraintThe right that a landlord has to seize the property of a tenant on the premises being leased and sell that property for payment of rent arrears.
Effective DateThe date an agreement, legislation etc. comes into force.
EquityThis refers to the excess that the value of a piece of property has after accounting for any charges against that piece of property.
EscrowThe holding of money or a written document, such as shares or a deed, until certain conditions are met by the two contracted parties.
Essential ServicesEssential Services includes retail supply of gas, electricity, water and telecommunications services. Suppliers of essential services cannot refuse supply to a Liquidator or receiver on account of debts outstanding prior to appointment.
Ex ParteLatin - for one party only. Ex parte refers to those legal proceedings where one of the parties has not received notice and therefore is neither present nor represented at the Court Hearing.
Examination For DiscoveryA legal proceeding whereby one party examines the party on the other side, usually under oath for the purpose of confirming facts and perhaps obtaining admissions from that other party. The Liquidator has the power to examine directors, staff, creditors, bank managers, accountants, solicitors and any other person who has knowledge of the affairs of the company. This power is given to the Liquidator under Section 261 of the Companies Act 1993.
Fair Market ValueA hypothetical value of a piece of property, giving a willing purchaser and a willing vendor, and a reasonable amount of time for the property to be exposed to sale.
Fee SimpleTitle to ownership without restriction or limitation. E.g. ownership of land in fee simple means the land is owned outright as compared to a person who leased land.
Fixed ChargeA fixed charge is a form of security granted over specific assets preventing the debtor dealing with those assets without the consent of the secured creditor. It gives the secured creditor a first claim on the proceeds of sale, and the creditor can usually appoint a receiver to realise the assets in the event of a default.
FixturesThose assets that are attached to or are part of a building, or are fixed to land.
Floating ChargeA floating charge is a form of security granted to a creditor over general assets of a company which may change from time to time in the normal course of business (e.g. inventories). The company can continue to use the assets in its business until an event of default occurs and the charge crystallizes on the appointment of a receiver. If this happens, the secured creditor can realise the assets to recover their debt by appointing a receiver and obtaining the net proceeds of sale subject to the prior claim of preferential creditors.
GoodwillThat value attributed to a business that is not tangible, but arises from the reputation, expertise, service or some other intangible that attaches to the business.
GuarantorA person who promises in writing to pay a certain debt of a debtor if the debtor defaults.
In SpecieA Latin term meaning in kind, or in its own form. E.g. a debt may be paid in specie by assigning an asset of equivalent value rather than paying out.
IndemnityThe act of one party protecting or guaranteeing protection, or freedom from liability, of a third party for actions of that party.
InsolventA person or entity that is not able to pay debts generally as they become due.
Insolvent LiquidationIn an insolvent liquidation the company is unable to pay its debts. A Liquidator can be appointed by the Court, or the shareholders of the company, or the directors if provided for in the Constitution. The Official Assignee can only be appointed by the Court. The creditors have the right at a creditors meeting to replace either the Official Assignee or the shareholders appointed Liquidator with a Liquidator of their own choice provided the nominee satisfies the qualifications of a Liquidator.
Interest on ClaimsInterest is payable on creditors claim up to the date of liquidation at the contracted rate (if there was no contractual agreement entitling a creditor to charge interest, they cannot claim it). Thereafter interest is payable on all admitted claims at the Judicature Act 1908 rate dependent on the extent assets are available to meet such interest after creditors admitted claims have been met in full.
Interim Dividend/
Distribution
A dividend paid to creditors before the liquidation is finalised.
Interim LiquidatorA person appointed by the Court to preserve the assets of a company during that time between the application to the Court to place a company in liquidation and the date of the Court Hearing.
Interim OrderA temporary Court Order intended to be of limited duration, usually until the Court has had an opportunity of hearing the full case and the opportunity of making a Final Order.
Joint and Several LiabilityThe liability of more than one person for which each person may be sued for the entire amount of the damages.
JudgementA formal decision, sentence or Order of a Court.
Leasehold ImprovementsAssets which are attached to a building and cannot be removed from any property being leased.
LiabilityAny legal obligation for which a person is responsible.
LienA lien is a right of possession over goods or property belonging to another, with a right to retain possession until debts due to the possessor are paid.
LiquidationLiquidation commences on the appointment of a Liquidator. The term ?winding up? was previously used.
LiquidatorA Liquidator is the person (or persons) responsible for dealing with the liquidation of a company. The Liquidator is appointed by the shareholders, the directors if the constitution permits, or the Court. A Liquidator must be an actual person and cannot be a company or some other body corporate. The Companies Act 1993 lists qualifications which restricts certain persons from acting (see Section 280).
Liquidator's ReportsThe Liquidator must prepare a report to all creditors within 5 working days of appointment. For Court liquidations the time is 25 working days. The report should include a Statement Of Affairs, proposal for conducting the liquidation and if practical, expected completion date. Also, a notice of calling a meeting of creditors or the reasons why such a meeting should not be called. Further reports on the conduct of the liquidation are due every six months. A final report is required at the completion of the liquidation.
LitigationA dispute that results in formal Court action or a law suit.
Meeting of Creditors and Members/ShareholdersThe procedures for calling and conducting creditors and members meetings for companies is set down in the Fifth Schedule of the Companies Act 1993. These meetings can now be held by assembly, or by audio or audio-visual communications, or by postal ballot. A Liquidator has some discretion in calling a meeting of creditors but this can be appealed by a creditor.
MembersThe members of the company are its shareholders.
MortgageAn interest given on real property to guarantee the payment of a debt.
MortgageeThe person in whose favour a mortgage is issued; E.g. a bank.
MortgagorThe person issuing the mortgage; E.g. a company or individual.
Official AssigneeAn Official Assignee is an employee of the Ministry of Economic Development who is appointed under the Insolvency Act 1967. They deal with the administration of Liquidations and Bankruptcies either as a Liquidator of Official Assignee.
Pari PassuLatin - equally and without preference. This term is often used in bankruptcy or Liquidation proceedings where creditors are said to be paid pari passu, or each creditor is paid pro rata in accordance with the amount of his claim.
Personal GuaranteeA personal guarantee is where one party guarantees payment of another party?s debt. The most common forms are directors? guarantees to banks to meet payment if the company fails to pay moneys owed under a mortgage or debenture.
PetitionThe application made under the Insolvency Act for the Court to hand down an Order stating the person is in bankruptcy.
PlaintiffA person who initiates a legal action in Court. That person may also be referred to as the Claimant, Petitioner or Applicant.
Possession DateThat time that is mutually agreed that the person buying property will take ownership, control or possession of it.
PPSA - Personal Property Security ActRequires a creditor to register any interest that he has in the property of another before the security is valid. The Registry can therefore be used if an institution is considering taking security on various assets, or if a person is contemplating purchasing an item such as a vehicle and wants to ensure that he purchases it free and clear of any encumbrances.
PreferenceA preference is a transaction that has the effect of putting a creditor of a company (or an Individual) in a better position than would have been the case in the event of a subsequent Liquidation or Bankruptcy.
Preferential CreditorsThose creditors that rank ahead of unsecured creditors, as defined in the Seventh Schedule of the Companies Act 1993. Preferred creditors are typically employees for wages and holiday pay and the Inland Revenue Department for GST and PAYE only.
Pro RataLatin - to divide proportionately amongst people having a claim.
Proofs of DebtNow replaced by Creditors Claims.
Proper Accounting RecordsThe requirements are set out in both the Companies Act 1993 and the Financial Reporting Act 1993. If a company does not maintain proper accounting records, then on the application of the Liquidator the Court may declare the directors personally liable for the debts of the insolvent company. However, the Liquidator must first prove that the lack of proper accounting records caused the failure of the company.
ProxyA written statement can be made whereby a creditor appoints another person to act on his behalf in a creditors meeting and any other matters pertaining to a Liquidation.
Public NoticeWhen required Public Notice is given by publishing the notice in one issue of the Gazette as well as in one issue of a newspaper circulating in the area of the company?s place of business, or the principal place of business, or the registered office in no place of business.
QuantumLatin - amount.
QuorumThe minimum number of persons that must be present either in person or by proxy, at a meeting of creditors before the meeting is considered to be a properly constituted one and hence can carry on with the business of the meeting. Under the Companies Act 1993 the minimum number is 3.
Realisation of SecurityThe firm is also able to assist secured creditors, and advise on the practical problems associated with recovering security and the effects of priority creditors on the value of the security.
RealisationThe amount of money received from the sale of assets.
Reasonable DirectorApplies to the duty of care defined in the Companies Acts taking into account the nature of the company, the nature of the decision and the position and responsibilities undertaken by the director.
ReceiverThe general term applied to a person appointed either by a secured creditor, debenture holder or the Court to take control of an/or realise assets. A receiver and manager can carry on the company?s business and sell the business and other assets secured by the charge.
ReceivershipThe general term applied when a person is appointed as a Receiver.
Reckless TradingDirectors of a company must not cause or agree to carry on a business likely to create a substantial risk of serious loss to the company?s creditors. An action by the Liquidator or Receiver may be brought against the directors for a breach of this duty.
Registered OfficeA company's registered office is that advised to the Registrar of Companies and is where the register of shareholders and directors is held. It is the address where actions can be served, such as a Statutory Demand.
RegistrarThe Registrar of Companies is a member of the Ministry of Economic Development and maintains records of all registered companies. An annual return verifies information such as the names of directors and shareholders, and the register of charges for debentures etc.
Removal from RegisterNormally applies to solvent companies but can apply to insolvent companies where no Liquidator is appointed and no creditor has commenced proceedings to have the company liquidated by the Court, also on completion of a liquidation.
RespondentThe party who responds to a claim filed in Court against him by a Plaintiff or the person who is being sued i.e. the Defendant.
Retention of Title Romalpa ClauseA Romalpa Clause covered in the conditions of sale or supply is where ownership (but not normally risk) of the goods is retained by the seller until the buyer has paid in full.
SecuredThe status a creditor has when he has security or a right in some property that he can sell or realize on.
Secured CreditorsA secured creditor is one who has a charge over property. In a liquidation secured creditors may realise the property subject to the charge, value the property and claim the balance as unsecured, or surrender the charge to the liquidator and claim in the liquidation as an unsecured creditor for the whole debt. The penalty for making a False Claim is imprisonment not exceeding 5 years or fine not exceeding $200,000.
SecuritySomething given or pledged to a person who is lending money in order to secure or guarantee payment of that debt.
Service of DocumentsThe procedures for serving documents are set out in the Companies Act 1993. Generally service can be on any one of the following ? a director, employee at the head office, the registered office, at the directions of the Court, with the agreement of the company and for companies registered under the Companies Act 1993, the Address for Service. Documents not for legal process can be served on the above as well as by post or facsimile to the registered office or principal place of business, or delivering to a document exchange used by the company.
Shareholders RightsCertain rights are given to shareholders in the Companies Act 1993 to take action against the directors for certain breaches of duty.
Solvent LiquidationA solvent liquidation is where the board has passed a resolution within 30 days (20 working days) before the appointment of the Liquidator that the company will be able to pay its debts. The directors supporting the resolution must sign a certificate to that effect and state the grounds for their opinion. This was previously known as a members voluntary liquidation and is used for the distribution of surpluses back to the members after paying all creditors.
Special ResolutionSpecial Resolution means a resolution approved by a majority of 75% or, if a higher majority is required by the companies constitution, that higher majority, of the votes of those shareholders entitled to vote, and voting on the question.
Specific ChargeA lien or security interest in a specific piece of property that can be distinguished from other pieces of property. For example, security over a vehicle.
Statement of AffairsA document prepared by the Liquidator or Receiver on appointment setting out the affairs of the company.
Statement of ClaimA document prepared by the Liquidator or Receiver on appointment setting out the affairs of the company.
Statement of Realisations and DistributionsA statement prepared in the matter of a liquidation or receivership whereby the realisations and distributions are set out.
Status QuoThe current state of affairs, or current position.
Statutory DemandA statutory Demand is a demand made by a creditor requiring the debtor to pay a debt within 15 working days or enter into a Compromise with Creditors. Failure to satisfy a statutory demand is evidence of ?Inability to Pay Debts?. Statutory demands lapse if not enforced within 6 weeks (30 working days) of last date for compliance.
SubrogationThe legal right that a person or corporation has when he pays someone's debt to recover that money from the debtor.
Summary JudgementA Summary Judgement is where an application is made to the Court to obtain a judgement against a debtor. Once obtained, this can speed the process of putting a company into an Insolvent Liquidation.
Transactions at UndervalueA transaction at an undervalue can be described either as a gift or a transaction in which the consideration or proceeds received are significantly less than the true value.
Unsecured CreditorAn unsecured creditor is a creditor who has no security over the assets of a company in liquidation or bankruptcy.
UsuryExcessive or illegal interest rates.
Vesting OrderAn Order by the Court that gives to a person, possession, control or title of property.
VexatiousAn act done by a person in order to annoy, embarrass or otherwise aggravate someone.
Voidable ChargesA voidable charge is one within a specified period prior to a liquidation and where no new valuable consideration has been given. This may be voidable against a Liquidator (see Preference).
Voidable TransactionsA voidable transaction is made when a company is unable to pay its debts within a specified period prior to the liquidation and has a preferential effect. These may in certain cases be voidable against a liquidator.
Voluntary AdministrationEffective 1st November 2007. Gives a possible insolvent company the ability to compromise with creditors to pay them a portion of the debt owing to them over a period of time through a Deed of Company Arrangement.
Voluntary Liquidations - (Insolvent Companies)Acting as Liquidators and assisting with the necessary procedures to put a company into liquidation voluntarily where the company's directors and shareholders consider that the company is insolvent and should be placed in liquidation.