Plain language law

New Zealand law explained for everyone

Companies Act 1993

Liquidations - The process of liquidation

248: Effect of commencement of liquidation

You could also call this:

“What happens when a company starts liquidation”

When a company starts liquidation, several important changes happen right away. The liquidator takes control of all the company’s assets. The directors can stay in their positions, but they can’t do much except what this part of the law allows.

Unless the liquidator or a court says it’s okay, you can’t start or continue any legal actions against the company or its property. You also can’t use any rights you have over the company’s property.

You can’t transfer any shares in the company unless a court says you can. The rights and responsibilities of shareholders can’t be changed. Shareholders can only use their powers for the purposes mentioned in this part of the law.

The company’s constitution (its rules) can’t be changed during liquidation.

These rules don’t stop a secured creditor (someone the company owes money to and has given some property as security) from taking or dealing with that property. But this is subject to section 305.

This section is also subject to section 139J(1) to (3) of the Banking (Prudential Supervision) Act 1989.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM321697.

Topics:
Business > Industry rules
Business > Fair trading
Money and consumer rights > Banking and loans
Previous

247: Power to stay or restrain certain proceedings against company, or

“Court can pause or stop legal actions against a company during liquidation request”

Next

249: Completion of liquidation, or

“How to officially end a company's liquidation process”

Part 16 Liquidations
The process of liquidation

248Effect of commencement of liquidation

  1. With effect from the commencement of the liquidation of a company,—

  2. the liquidator has custody and control of the company's assets:
    1. the directors remain in office but cease to have powers, functions, or duties other than those required or permitted to be exercised by this Part:
      1. unless the liquidator agrees or the court orders otherwise, a person must not—
        1. commence or continue legal proceedings against the company or in relation to its property; or
          1. exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company:
          2. unless the court orders otherwise, a share in the company must not be transferred:
            1. an alteration must not be made to the rights or liabilities of a shareholder of the company:
              1. a shareholder must not exercise a power under the constitution of the company or this Act except for the purposes of this Part:
                1. the constitution of the company must not be altered.

                  1. Subsection (1) does not affect the right of a secured creditor, subject to section 305, to take possession of, and realise or otherwise deal with, property of the company over which that creditor has a charge.

                  2. This section is subject to section 139J(1) to (3) of the Banking (Prudential Supervision) Act 1989.

                  Notes
                  • Section 248(3): inserted, on , by section 12 of the Reserve Bank of New Zealand (Covered Bonds) Amendment Act 2013 (2013 No 103).
                  • Section 248(3): amended, on , by section 300(1) of the Reserve Bank of New Zealand Act 2021 (2021 No 31).