Dissolution and winding-up

Dissolution is the act of ending an organisation's existence as a legal entity. There are many reasons why an organisation might be dissolved. It could be that the group has achieved its goals, or it may be necessary because the organisation is unable to continue due to insufficient membership or financial difficulties.

Liquidation (or winding up) is the process that brings an organisation's activities to an end. Liquidation begins when a liquidator is appointed and generally involves selling (realising) the organisation's assets, paying its liabilities and distributing any surplus in accordance with its rules. The process of liquidation differs depending on whether the incorporated organisation is an incorporated society, a charitable trust board or a company.

Incorporated societies

Many incorporated societies will reach a point when they can no longer operate as a society e.g. membership numbers have dropped or it's in financial difficulty. An incorporated society can be put into liquidation in one of three ways:

  1. Voluntarily by the members resolving at a general meeting (by simple majority) to do so and to appoint a liquidator. A second general meeting must be held to confirm this previous resolution.

  2. By the Registrar of Incorporated Societies issuing a notice dissolving the society if he or she believes that the society is no longer operating, e.g. if the society fails to send in a copy of its annual financial statements. At the end of liquidation, the Registrar will remove the society from the Register and end its life as a separate legal entity.

  3. By the High Court, on receipt of an application to do so from the society itself, a member, a creditor of the society, or the Registrar of Incorporated Societies.

Once a society is in liquidation, the activities of the society are stopped, debts are paid, and any assets are distributed in accordance with the rules. The proceeds from the society's assets are collected and distributed to its members (unless the rules state otherwise). If the incorporated society has charitable status, any surplus assets must be directed to other charitable organisations within New Zealand that have similar aims.

Charitable trusts

A charitable trust may be put into liquidation in one of two ways:

  1. Voluntarily by the trustees or members who pass a resolution to that effect at a general meeting and confirmed at a second general meeting held specifically to consider winding up.

  2. By the High Court, on receipt of an application to do so from the board itself, a board member, the Attorney-General, a creditor of the board, the Registrar of Incorporated Societies, or any other person whom the Court permits.

Under Parts 16 and 17 of the Companies Act 1993, the liquidation of a trust board is the same as that for a company. If there is any surplus after paying debts, this must be distributed to another charitable organisation in New Zealand. On liquidation, the trustees or officers of charitable trust boards may be personally liable in certain situations, e.g. if proper accounting records have not been kept.

Companies

A company may be put into liquidation in one of two ways:

  1. Voluntarily, by the voting shareholders or the company's board.

  2. By the High Court, on receipt of an application to do so from the company, a director, a shareholder or other entitled person, a creditor of the company, or the Registrar of Companies.

Liquidation of a company is when it ceases to operate or becomes bankrupt. The company's assets are sold and the proceeds are paid to the company's creditors with any surplus money distributed among the shareholders. If the company has charitable status, any surplus assets must be given to other charitable organisations within New Zealand that have similar aims.

The company needs to write to Inland Revenue for confirmation that Inland Revenue has no objection to the company being struck off the New Zealand Companies Register. Once a written response is received from Inland Revenue advising they have no objection, the final effect of liquidation is that the company is removed from the companies register.

Tip: For further information on liquidation, visit Societies and Trusts Online: http://www.societies.govt.nz , and the Companies office website: http://www.business.govt.nz/companies/learn-about/receivership-liquidation-administration.

 

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