Insolvency Law at Cook Islands
Insolvency law in the Cook Islands is primarily governed by the Insolvency Act 2006, which provides the legal framework for the administration of insolvency cases for both individuals and businesses.
Key Aspects of Insolvency Law in the Cook Islands:
1. Types of Insolvency Proceedings:
Liquidation (Winding Up): This is a process where a company's assets are sold off, and the proceeds are distributed to creditors in order of priority.
Receivership: This is a situation where a receiver is appointed to take control of a company’s assets to ensure that secured creditors are repaid.
Voluntary Arrangements: The debtor may enter into a voluntary arrangement with creditors to settle debts outside of formal liquidation or bankruptcy.
Bankruptcy (Personal Insolvency): Individuals facing financial difficulties may apply for bankruptcy proceedings to have their debts discharged after certain procedures are followed.
2. Insolvency Trigger:
A debtor may be considered insolvent if they are unable to pay their debts when due or if their liabilities exceed their assets.
3. Who Can File for Insolvency:
Creditors can initiate liquidation if the debtor is unable to pay a debt that exceeds NZD 1,000.
Debtors can apply for their own liquidation or voluntary bankruptcy.
Receivership can be initiated by a secured creditor who holds a security interest over the debtor's assets.
4. Insolvency Procedures:
Liquidation Process:
A liquidator is appointed by the court or the company’s shareholders (in voluntary liquidation).
The liquidator takes control of the company’s assets, sells them, and distributes the proceeds to creditors.
Receivership:
A receiver is appointed by a secured creditor to protect their interests and recover the debt owed.
Bankruptcy (Personal Insolvency):
Individuals who are unable to pay their debts can apply for bankruptcy.
A trustee is appointed to manage the debtor’s assets and distribute them to creditors.
5. Priority of Claims in Liquidation:
Secured creditors: Paid first from the sale of specific secured assets.
Preferential creditors: Such as employees’ wages and salaries.
Unsecured creditors: Any remaining funds are distributed among unsecured creditors.
Shareholders: Paid last, only if all creditors are satisfied.
6. Effects of Insolvency:
For companies, insolvency usually results in the cessation of operations, sale of assets, and eventual closure.
For individuals, bankruptcy can lead to the discharge of most debts after the completion of the bankruptcy process, but certain obligations (e.g., child support, certain taxes) may not be discharged.
7. Insolvency Practitioner’s Role:
A licensed insolvency practitioner, such as a liquidator or receiver, is appointed to manage the insolvency process, investigate the company’s or individual’s financial affairs, and ensure proper distribution of assets.
8. Voluntary and Court-Initiated Procedures:
Voluntary Liquidation: Initiated by the company’s directors or shareholders when they believe the company cannot continue its business.
Compulsory Liquidation: Initiated by creditors or the court when a company fails to pay its debts and is deemed insolvent.
9. Bankruptcy Duration:
For individuals, bankruptcy generally lasts for three years, after which most unsecured debts are discharged, subject to the terms of the bankruptcy order.
10. Rehabilitation or Restructuring:
The Cook Islands insolvency law allows for the possibility of a voluntary arrangement, which is a type of debt restructuring where the debtor agrees to a repayment plan with creditors, avoiding liquidation.
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