Under section 241(4) of the Companies Act 1993 the High Court "may" order that a company which is unable to pay its debts be put into liquidation.  While the Court retains a discretion not to order the liquidation of an insolvent company, it will not usually exercise that discretion in the absence of good reasons for doing so.

In Commissioner of Inland Revenue v Newmarket Trustees Limited [2012] NZCA 351, the Commissioner of Inland Revenue (CIR) successfully appealed against a High Court decision that the insolvent company Newmarket Trustees Limited (Newmarket) not be put into liquidation in exercise of the discretion under section 241(4).  Newmarket was a trustee company established and operated by a law firm and was trustee of over 100 trusts.  The CIR had applied to have Newmarket put into liquidation after a statutory demand issued to Newmarket for a tax debt had expired unremedied.

In exercising its discretion under section 241(4), the High Court referred to the fact that it is common for professional trustees to use corporate structures to shield themselves from personal liability, the cost to the law firm of making alternative arrangements for the relevant trusts involved, the costs of the liquidation (which would fall on the CIR) and the fact that there were no assets held by Newmarket that could be made available to creditors (amongst other things).

The Court of Appeal disagreed with the High Court's analysis and found that there was no good reason why the general rule should not apply here.  It was held that the High Court had overlooked the wider public interest considerations and well-established principles of trustee law which meant that as a matter of principle, Newmarket, as an insolvent trustee company, ought to have been put into liquidation.  The Court of Appeal commented generally that an insolvent trustee company should, as a general rule, almost invariably be put into liquidation so as to ensure that the trust was properly administered either by the liquidator or a replacement trustee.

See court decision here.