A small business foray into liquidation law courtesy Fast 4S

Liquidation is a scary word in a land where small businesses are still suffering the after-effects of the 'Great Recession'. Like many small business, we have lost money when our debtors have gone under. Most liquidations are tragic stories that result in the business either closing down entirely or a change of ownership. However, that isn't always the case. We recently had a debt collection experience that caused us to learn some disturbing things about the liquidation process.which make it particularly hard for small businesses.

Background

On June 15 2010 a customer came into our workshop with a car they had just bought from the company trading as Fast 4S Turbos in Auckland. He had driven it straight to Wellington from Auckland and something was wrong with it. We phoned Fast 4S in Auckland and the Finance Manager agreed to pay for the repairs.

We sent the invoice to Fast 4S and a series of statements over the following months. I called both the accounts person and the Finance Manager numerous times between July and November and the consistent result was that they said they didn't know why it hadn't been paid and they would 'talk to Adam'. In November we referred the debt to EEC Credit control and they server a debtors demand on 8 November. We did a company register search to get the legal name and concluded it was 'Fast Fours and Turbo Ltd'.

On 20 December EEC Credit control came back to us with the following response from Adam Bsisou (dated 4 December)

Hi Aaron,

As per our telephone conversation on Friday, Fast Fours and Turbos Ltd is just a brand name and haven't traded since October 2008.

The company that have (sic) this debt with McLennan is Fast4s & Turbos Ltd. Which has been liquidated and the money is with the liquidator so you can give him a call under the company search office.

I know it might sound confusing but there are five different companies under the Fast Fours brand and they have different owners and shareholders.

I you're unsure about anything please don't hesitate to call me.

Kind regards

Adam Bsisou

Directory

Fast Fours and Prestige Ltd

Liquidation

Our knowledge of the liquidation process was fairly limited at this stage. So, we started with the companies register. We found several companies with names that appeared related to Fast 4S with Adam Bissou as either a director or shareholder but I had quite a bit of difficulty finding the one in liquidation. Searching on 'Fast 4S' only returned one result for a company called 'GNR Sales Yard Limited' which seemed unrelated.

Stumped, I took a closer look at GNR Sales Yard Ltd and found that it been called 'Fast 4 S' until August 2010 at which point the company name was changed from Fast 4S to GNR Sales Yard and the director's name was changed from Adam Bissisou to Bill Emery.

The company appointed Kevin J GILLIGAN ( ACCOUNTING ASSOCIATES LIMITED ) as liquidator on 16 September. The liquidator's report stated that the company's liabilities at the time of liquidation were $3553 and their assets were $0. The report also stated that they ceased trading in March.

So I decided to do as suggested and call the liquidator. I had a couple of questions that I really wanted answered:

1. Were we on the list of creditors supplied to the liquidator
2. How did the liquidator notify the creditors
3. Did the liquidator investigate any related party transactions to see if they had been for a fair market value
4. Why did he say in the report that the company ceased trading in March?

Before calling I did a bit more research and found out that the liquidator has quite broad powers and it appeared that they could potentially claw back related-party transactions if appropriate. I also did a LTNZ lookup on the number plate of the car that we had repaired. The LTNZ records showed that the car we had repaired was owned by Fast 4s & Turbos 2008 from 15 March 2010 date to June 3 2010 when ownership transferred to June Fast Fours Prestige Ltd. The car was sold on 9 June 2010.

The liquidator

What shocked me and the reason I am writing this up now is what I learnt from the liquidator.

First the easy question - the date that trading ceased was supplied by the company to the liquidator. Next. Where was the creditors list supplied by Fast 4s & Turbos 2008?

The liquidator told me that no list of creditors had been supplied and he had not requested one. He had followed the letter of the law and notified the IRD and posted two ads in the 'gazette' as required by law. He had even held a public meeting “but no-one showed up”.

Hang on, so, he held a public meeting for the creditors but the only way for the creditors to know about the public meeting was if they had happened to see an ad in the 'gazette'. It took me some effort to find the New Zealand Gazette – a publication that most small business owners would never discover. I also managed to track down copy of the ad placed in the New Zealand Herald. While it is conceivable that we COULD have been reading the classifieds in the New Zealand Herald on 23 September 2010 would we have had to be reading very carefully to pick up on the advertisement titled in bold 'GNR Sales Yard Limited (in liquidation)'

.

Did the liquidator ask whether related party transactions had taken place at fair market value? No. Why not? The liquidator acts on behalf of the creditors and in this case, he told me, there weren't any. So, from his point of view there were no creditors because no-one responded to the ads or attended the public meeting. Hence there were no creditors that he needed to represent so he asked no questions.

I can't help thinking the liquidation law made sense in an earlier time. The whole concept of a 'gazette' suggests a printed publication that 'everyone' read. Nowadays everyone gets information from the internet but to be easily available it needs to be fully indexed by Google. An RSS feed of liquidations available from the companies register would permeate the web. But although there are web repositories of information where none appear to be indexed by google. If you think the company MIGHT be insolvent you can search the government gazette or companies register. The insolvency and trustee services also claims to hold an insolvency register but I couldn't find Fast 4s & Turbos 2008 or GNR Sales Yard on their register.

In fact there is one indexed website that reported Fast 4s & Turbos 2008 going into liquidation. http://www.propbd.co.nz reported the following:

      Voluntary liquidation: GNR Sales Yard (ex-Fast 4s & Turbos 2008) closes

      Company: GNR Sales Yard Ltd (ex-Fast 4s & Turbos 2008 Ltd)

      Directors: Billy Emery, New Lynn, appointed and Adam Bsisou, Titirangi, resigned 31 August   

      Liquidation: 16 September

      Liquidators: Kevin Gilligan (Accounting Associates Ltd)

      Creditors’ claims: Saturday 23 October

     Other details: The company changed its name on 31 August.This company &Fast Fours & Turbos Ltd    settled an application to wind them up in June. Mr Bsisou is a director of Bullock Track Ltd, Fast Fours & Prestige Ltd, Fast Fours Performance Clinic Ltd & The Performance Clinic Ltd.

I contacted the website owner and he told me that he attends Auckland High Court and reports what takes place on his website. While this is a great service it was pure fluke that caused the words 'Fast 4S' and 'liquidation' to be in any easily accessible place. Any other court and it wouldn't have happened.

But even beyond the question of 'how' a liquidation is advertised. It seems bizarre to me that the liquidator neither sought nor received a list of known creditors. How can a company receive monthly statements and phone calls from a creditor and not be required to notify them of a liquidation until after it is completed? The liquidation report states that 'a creditors schedule was provided' but I asked the liquidator several times about the creditors and it seems that this schedule was based on the (lack of) response to the advertisements.

Outcome

Although I was somewhat shocked that the liquidator was not obliged to identify and notify known creditors I was not convinced that we were a creditor of Fast4S & Turbos Limited.

Although the car we repaired had been owned by 3 different Fast 4S companies in the first 6 months of 2010 we concluded that the finance manager must have been representing the company that sold the car when he authorised the repairs. At the time of sale the car was owned by Fast Fours Prestige Ltd so we notified EEC Credit Control that Fast Fours Prestige Ltd was the creditor.

On 8 Feb 2011 EEC issued a Notice of Intention to Issue Legal Proceedings against Fast Fours Prestige Ltd and on 18 Feb they notified us that they had received payment.

In this case we received payment because actually had no connection to the liquidated company but it was only because of my efforts to investigate it that I was able to establish that Adam was not giving us accurate information, for whatever reason