Liquidation will leave many angry creditors

COMMENT: The Otago Rugby Football Union will leave a long list of disgruntled creditors if it goes into liquidation tomorrow.

The Bank of New Zealand, Dunedin ratepayers and other parties including Otago schools, rugby clubs and tradespeople are expected take a financial hit - some much worse than others.

The BNZ will be at the top of the list of secured creditors and will be the first to receive any money from any assets held at the time of liquidation.

The Dunedin City Council, and its ratepayers, and others owed money from the union, are unlikely to see any cash, such is the union's parlous financial state.

Sources told the Otago Daily Times yesterday there was unlikely to be anything left to pay the $2.3 million owed by the union.

Calls have started for the province to draw a line tomorrow and start afresh on Monday, but that has some worried about the moral implications.

Liquidation can take two forms.

Sometimes, profitable companies want to move into a different sphere of activity and decide to go into liquidation. In those cases, creditors liquidate assets to try to get as much of the money owed to them as possible.

They have first priority to whatever is sold off. After creditors are paid, the shareholders get whatever is left.

Or a court order can force a company into liquidation. Liquidations are also classified according to whether the company is solvent or insolvent.

In the case of the union, board members have decided they cannot continue to let the union trade. The assets will be liquidated. If there is any money, it will go to the secured creditors, such as the BNZ, followed by the DCC and tradespeople.

The moral issue for the union is leaving its bankers, ratepayers and debtors in the lurch and expecting them to support provincial rugby in the future.

Liquidation is a softer option than receivership, where assets are sold off at whatever price can be gained.

In receiverships, creditors will take whatever price they can get from the failed institution.

Bankruptcy is usually associated with individuals, not institutions like the rugby union.

If the union does go into liquidation, a liquidator is appointed, either through the union (the shareholders if it was a company) or the court making an appointment.

The liquidator collects the assets of the company and pays the creditors in order of priority. The company is then formally dissolved.

The main consequences of liquidation is that the company no longer has the power to dispose of its property.

Order of payment

• Any secured creditors.

• All costs, charges and expenses involved in the liquidation.

• All wages and salaries payable to employees, including holiday pay.

• Unsecured creditors.

• Any interest attached to any debt.

• Any debt owed to shareholders of the company, such as dividends and payments.


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