Plain language law

New Zealand law explained for everyone

Companies Act 1993

Liquidations - Company unable to pay its debts

287: Meaning of inability to pay debts

You could also call this:

“When a company is considered unable to pay its debts”

You can assume a company can’t pay its debts if certain things happen, unless someone can prove otherwise. These things are:

If the company doesn’t do what a statutory demand tells it to do.

If someone tries to get money the company owes them through the court, but the company can’t pay it all.

If someone who has the right to take control of most or all of the company’s property because the company owes them money decides to do so.

If the company tries to make a deal with the people it owes money to, but those people don’t agree to the deal.

Remember, these are just signs that a company might not be able to pay its debts. If someone can show that the company actually can pay its debts, then these signs don’t matter.

There’s also another part of the law, section 288, that talks more about this. You should look at that too when thinking about whether a company can pay its debts or not.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM321967.

Topics:
Business > Industry rules
Business > Fair trading
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286: Orders to enforce liquidator's duties, or

“Court can order liquidators to do their job properly or remove them”

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288: Evidence and other matters, or

“Rules for using evidence to prove a company can't pay its debts”

Part 16 Liquidations
Company unable to pay its debts

287Meaning of inability to pay debts

  1. Unless the contrary is proved, and subject to section 288, a company is presumed to be unable to pay its debts if—

  2. the company has failed to comply with a statutory demand; or
    1. execution issued against the company in respect of a judgment debt has been returned unsatisfied in whole or in part; or
      1. a person entitled to a charge over all or substantially all of the property of the company has appointed a receiver under the instrument creating the charge; or
        1. a compromise between a company and its creditors has been put to a vote in accordance with Part 14 but has not been approved.