To have a meaningful discussion and put a plan in place, it helps to have the important information ahead of time. This allows us to give you a steer on your options and advise on what will likely get the best outcome for stakeholders.

So, what do we look for and why?

1. Creditor List
   To understand the level of company debt and the class of each creditor. If there are secured creditors, we’ll want to know what assets they may be entitled to under a General Security Agreement (GSA) or Purchase Money Security Interest (PMSI), and whether any assets need to be returned to suppliers with valid claims. If we look to trade the business on it is important to know which suppliers may be key relationships that are not easily substituted and will need their buy in for any ongoing trading prospect.
2. Account Application Folder
   Beyond identifying creditors, reviewing account applications helps us spot any personal guarantees that may survive liquidation. These will need to be dealt with by the guarantor in their personal capacity.
3. Asset Register
   What assets does the company own? This is key to understanding what we’ll be dealing with during the appointment and whether those assets are recoverable. If there are no recoverable assets, an upfront fee may be required to proceed with the insolvency appointment. Are any of these assets surplus to requirements that may be realized to free up some quick cash for the business and get it through a lumpy period.
4. Bad Debts List
   Have any debtors been written off? If so, why? Are they recoverable? If the company accounts on an invoice basis for GST, there may be a refund due as a result of the write-off.
5. Debtors List
   What debts are currently outstanding? Are they supported by sufficient documentation? Are they recoverable and is this overstated I the financial statements? What is the average debtor days, can this be brought down to get in some cash to help working capital fluxuations.
6. Employee Arrears
   What wages, holiday pay, or other entitlements are owed to staff? If we’re considering trading on, we’ll need a plan to address arrears otherwise, staff may walk off on Day 1.
7. Lease Agreement
   If the company leases premises, we’ll need to know how long is left on the lease, whether there’s a bank bond or personal guarantee, and which onsite assets are landlord owned chattels (as detailed in the lease). Is the landlord supportive of the business being traded on if their ongoing costs are met and will they consider a new owner coming in and entering into a new lease for the site.
8. Financial Statements
   Do the documents above align with the financial statements? If not, why? Financial statements are typically prepared by the company’s accountant, while the other documents are often sourced directly by directors/shareholders with minimal oversight.
9. Latest Management Accounts
   While financial statements reflect the last financial year, management accounts give us a current snapshot of the company’s position.
10. Company Constitution / Shareholder Agreements

Do these exist, or are we just working with what’s in the Companies Act 1993? A company constitution or shareholder agreement often includes clauses that change the voting thresholds for special resolutions or outline the process required to place the company into liquidation or take other formal steps. These documents help clarify who has decision-making authority and what procedures need to be followed, especially when stakeholders aren’t aligned.

This list isn’t exhaustive. Depending on the asset types and complexity of the situation, further documents will likely be required once the engagement begins.

The Inland Revenue Department has a formidable reputation. They have extensive investigative powers which can lead to substantial cost and increased tax risk if they decide to audit your business.

You must comply with the IRD, but at the same time you can manage their process so they only receive relevant material with as little disruption to your day-to-day business.

There are many reasons why the IRD might investigate your business: If you are not paying your GST / PAYE. An anonymous source may tip them off, your business’ name may come up in the course of another investigation, or they may decide you’re involved in a business with serious tax risks. Whatever reason the IRD decides, they don’t have to tell you.

There are companies such as Accountancy Insurance who provide audit insurance to mitigate the risk. Speak with your accountant about this option.

If your business is being audited, the IRD are legally allowed to search your premises without a warrant. In most cases they will let your accountant and directors know beforehand, but they can and do make unannounced visits. You’ll have to turn over all relevant material, unless it’s protected by legal privilege.

Ignorance isn't bliss

If you receive an IRD formal demand, doing nothing really isn’t an option. Inaction will limit your options and virtually guarantees insolvency. You can be held personally liable for failing to pay PAYE.

The IRD can find directors liable for their company’s tax under general insolvency law. The law also says if a company agreement purposefully leaves it unable to pay a foreseeable tax liability, a director can be personally liable.

In the first instance the IRD will try for a settlement. This is your chance to negotiate terms and arrive at a compromise that allows you to stay in business while the IRD claims their tax. If you can reach a repayment agreement, the IRD won’t take the matter further.

If you’re unable to reach a compromise, the IRD will obtain a Court order to establish you’re a debtor and how much you owe. You’ll receive a formal demand before the Court order, followed by the Court application if you don’t settle the demand.

Voluntary liquidation

One possibility for meeting the IRD formal demand is voluntary liquidation. This would give you and your shareholders a small element of control over liquidation proceedings. You can choose your own liquidator and remain a company director as you work through the liquidation process.

If you do nothing or you can’t reach a settlement, the IRD can apply for their preferred liquidator or Official Assignee and manage your affairs and liquidate your company. In this instance the Court will appoint the IRD’s liquidator. As company director you have less control over the process and must cooperate with the Court appointed liquidator or Official Assignee at all times.

Deciding between involuntary and voluntary liquidation may not seem like much of a choice. Remember, you can choose to have someone that understands you, your business and your industry, and can protect your interests while satisfying the IRD’s demands. Your liquidator can apply specialist skills to remove some of the sting from this traumatic process.

Given the choice between a partner who will walk you through the process, and a stranger who will take a less-balanced approach, which would you choose?

Statutory and formal IRD demands are outside threats to your business. There are just as many risks that can come from within, so how do you protect your business from those?

If your company is experiencing financial difficulty, download our free guide for NZ Companies to discover your different options.