11 May 2026
Over the past 12-18 months, many New Zealand businesses have been navigating what can best be described as a “slow squeeze.” It hasn’t been a single catastrophic event, but rather a steady accumulation of pressures, these include rising interest rates, increased input costs, tighter consumer spending, and delayed payments.
For professional advisers working closely with clients, the challenge is recognising when normal trading stress crosses the line into genuine insolvency risk and knowing what to do next.
From Pressure to Distress: The Warning Signs
In our experience, business failure is rarely sudden. Instead, it follows a familiar pattern. Early recognition is key to preserving options and protecting outcomes.
Some of the more common early indicators include:
- Persistent cash flow shortages despite profitable trading on paper
- Increasing reliance on creditor stretching (especially IRD or trade creditors)
- Inability to meet tax obligations as they fall due
- Use of short-term funding (overdraft, credit cards, online loans) to cover structural deficits
- Mounting aged receivables with little prospect of recovery
At this stage, many business owners remain optimistic and focused on “turning things around.” The classic she’ll be right attitude NZers are known for. While that mindset is understandable, delay can materially worsen the position for all stakeholders.
The Critical Shift: Directors’ Duties Come Into Focus
Once a company is, or is likely to become, insolvent, directors’ obligations shift. The focus moves away from shareholders and toward creditors.
Continuing to trade while incurring debts that the company cannot realistically repay can expose directors to personal liability. This is an area that has seen increasing attention in New Zealand courts, and it’s something advisers should be proactively discussing with their clients.
It’s not about forcing a business to stop trading prematurely it’s about ensuring decisions are made with clear awareness of the financial position and associated risks and documented correctly.
Why Early Advice Leads to Better Outcomes
One of the biggest misconceptions is that engaging an insolvency practitioner means “the end of the road.” In reality, early engagement often creates more options, not fewer.
Depending on the circumstances, those options might include:
- Informal restructuring: Working with creditors to realign payment terms
- Refinancing or capital injection strategies
- Orderly wind-downs that preserve value and minimise losses
- Formal insolvency processes such as voluntary administration or liquidation, where appropriate
The earlier these conversations happen, the more control directors and advisers retain over the process, they may then plan and the better the likely outcome for creditors.
The Role of Trusted Advisers
Accountants and lawyers are often the first to see the signs. You’re in the numbers, the agreements, and the day-to-day reality of your clients’ businesses.
This places you in a powerful position but also creates a challenge. Raising insolvency concerns can feel uncomfortable, particularly when long-standing relationships are involved.
However, experience shows that clients are generally grateful for early, pragmatic guidance, even when the message is difficult. Framing the conversation around preserving value and protecting stakeholders can help shift the perception from “failure” to “management.”
Common Pitfalls to Avoid
When businesses get into trouble, we frequently see a few recurring mistakes:
- Waiting too long: Hoping trading conditions will improve often leads to a worse outcome
- Selective creditor payments: Prioritising some creditors over others without a clear strategy can create legal risk
- Poor record-keeping: Inadequate financial information makes it harder to assess options and defend decisions
- Avoiding communication: Silence with creditors tends to escalate issues rather than resolve them
Avoiding these pitfalls can significantly improve the position for all involved.
Final Thoughts
Tough trading environments are a normal part of the economic cycle, but the current conditions are testing many businesses that might previously have been considered stable or have never been through a downturn before.
For advisers, the opportunity lies in helping clients act early, make informed decisions, and avoid the compounding effects of delay.
If nothing else, the key message is simple: when it comes to financial distress, time is not neutral. Acting sooner almost always leads to a better outcome.