6. Assessment of New Zealand Stevedoring Limited
During the liquidation of New Zealand Stevedoring Limited, three companies were transferred/sold as going concerns to a related company, with the proceeds used to meet creditor demands. The money ran out before employee claims could be paid in full. Although the employee priority for wages and holiday pay was satisfied, the company's redundancy commitments were not met. The remaining companies continued to trade, having reached an agreement with their employees on the terms and conditions of their employment contracts.
The Registrar of Companies investigated and found no evidence that the directors or owners of New Zealand Stevedoring had sought to defeat creditors' legitimate interests. The Registrar concluded that market value had been received for the company assets, with the proceeds used to repay creditors.
It is unlikely the public interest would have been served by prohibiting the use of phoenix companies in circumstances similar to those surrounding the insolvency of New Zealand Stevedoring Limited. Such a prohibition would be likely to result in a loss of value to creditors as a whole. This could in turn impact on certainty, the cost of credit and business viability and competitiveness.
The New Zealand Stevedoring case relates less to the problems associated with phoenix companies (market value was paid for the assets, and the interests of creditors were not frustrated by the phoenix arrangement) and more to the priority afforded employee creditors (in particular, redundancy monies).
Altering priorities in insolvency would, among other things, alter the relative cost of credit from those sources and effect the incentives of parties involved in liquidation (for example, creditors monitoring debtors) and the efficiency with which liquidations are conducted. These issues need to be considered carefully. It is important that any arguments in favour of a priority for redundancy payments be:
- Weighed against the possible costs;
- Considered against the strength of arguments in favour of other creditor groups receiving priority; and
- Assessed against other options that might better achieve the priority's objective.
For these reasons the redundancy payments priority is assessed in the Ministry's discussion document Priority Debts in the Distribution of Insolvent Estates. The discussion document also considers options for addressing the redundancy payments in insolvency, including:
- Giving redundancy payments a higher priority in insolvency;
- Providing for a fund (based on a levy on industry) to meet redundancy payments not satisfied as a consequence of insolvency;
- Attaching employee liabilities to assets transferred as a going concern to another company; and
- Relying on the social welfare system to meet the needs of redundant employees facing hardship.
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