Inland Revenue on Covid-19 Impact      Video Link Here

The IRD have advised that if taxpayers are adversely impacted by COVID-19, and they pay the outstanding core tax as soon as practicable that they will automatically write-off any penalties and interest. Taxpayers who are impacted by Covid-19 are suggested to apply for instalment arrangements. Customers who may already be in an arrangement but consider they may not be able to continue with the current terms due to being significantly affected by COVID-19 may ask to renegotiate an instalment arrangement. The key message is to get in contact with IRD.

It is the Commissioner’s view that a customer has been significantly adversely affected by COVID-19 financially where the customer’s income or revenue has reduced as a consequence of COVID-19 and that as a result of that reduction in income or revenue is unable to pay their taxes in full and on time.

The type of relief available for new debt due to COVID-19
• Instalment arrangement
• Instalment arrangement - deferred payment start date
• Partial write-off due to serious hardship and payment of the remaining tax by instalment or a lump sum
• Partial payment and write-off the balance under maximising recovery of outstanding tax
• Write-off due to serious hardship

You can request interest and penalty remission due to COVID-19 through myIR under the “I want to” menu by choosing “Notify of impact by COVID-19”. To request remission of penalties and interest you will be asked to confirm that:
• Some, or all of the amounts owing were due on or after 14 February 2020,
• Your ability to pay by the due date, either physically or financially, has been significantly affected by COVID-19,
• You have contacted the Commissioner as soon as practicable to request relief and your client will pay the outstanding core tax as soon as practicable.

Wider Government support available for businesses adversely impacted by COVID-19

There are a wide range of support measures available for businesses. A summary is in the table below (courtesy of IRD), and full details are available on the www.business.govt.nz webpage Financial support for businesses — business.govt.nz.

If the position is dire and this is the last straw, our staff are availalble to discuss insolvency options for companies. If you just need time, we recommend getting in contact with your tax agent to communicate with IRD and seek an instalment arrangement.

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July has mirrored the insolvency appointment figures over the last couple of months. The pressures affecting our economy have also remained fairly consistent over the last few months:
- Countries are continuing to fluctuate in and out of COVID-19 lockdowns
- Businesses and consumers are facing ongoing shipping delays and supply shortages
- Consumer demand for goods continues to exceed supply in many areas
- Labour shortages remain an issue
- Inflation remains higher than RBNZ’s targets and the affordability of goods remains an issue

To the end of July, the outlook for growth has continued to look positive:
- Unemployment rates have now fallen to pre-COVID-19 rates.
- The construction industry and the housing market continue to run hot
- Consumer spending remains strong
- The Reserve Bank has halted its Large Scale Asset Purchase programme

At the beginning of this week, most economists were predicting that the OCR would increase in the first time in 7 years. While the messaging continues to be that we should expect the OCR to increase before the end of the year, with a view to moving to an OCR of 2% by the end of 2023, subject to the impact of the latest COVID-19 lockdown. By the end of July, banks had already increased interest rates over the last couple of months, anticipating the August 2021 OCR increase that did not eventuate. We doubt that banks will decrease their mortgage rates before the next OCR update, given the indications that we should still be expecting the OCR to rise.

Data shows that 80% of residential borrowers currently have their mortgage interest rates locked in for 1 year or less, largely as a result of the historically low mortgage rates that have been on offer over the last few years. For new home owners with a 30 year mortgage, a 2% increase in mortgage rates will increase the monthly repayments on a $500,000 loan by around $550 per month. If wages do not increase in line with the cost of living, many could struggle to meet theses higher repayment obligations.

If you want to have a free chat about any issues your business is experiencing or about any other insolvency matter, contact us on 0800 30 30 34 or email This email address is being protected from spambots. You need JavaScript enabled to view it..

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

The number of company insolvency appointments in July 2021 were:
- Consistent with May and June this year, both by number and type of appointment
- Comparable to July 2020 but there were significantly more court appointments in 2021 (up around 68%)
- Down 20% compared to July 2019

The spike in solvent appointments is likely attributable to companies waiting for their financial statements to be prepared following the end of the 31 March 2021 financial year and other companies having a 30 June or 31 July balance date.

The number of liquidators being appointed by the Court on insolvent liquidations increased from 37% in June 2021 to 44% in July 2021. This trend is not surprising, given the number of liquidation applications that have been advertised in 2021.

Notable insolvency appointments in July:
- Receivers have been appointed over West Coast Brewery (New World Investment New Zealand (in receivership)). The business was listed for sale after one of its key people, a non-resident, could not get into New Zealand due to COVID-19 boarder restrictions. When the receivers were appointed, the business had not yet been sold.
- Many of the companies that were subject to insolvency processes this month operated in the following industries:
o Construction
o Dairy
o Forestry
o Hospitality

Personal Insolvencies - Bankruptcy

The number of personal insolvencies has been fairy consistent month on month since April 2021. Bankruptcies were around 24% higher in July 2021 than in in the previous few months, which correlates to fewer no asset procedures and debt repayment orders in July. This shift might indicate that the there has been more payment default on bigger debts.

As the cost of living continues to increase and more companies fail, we expect that there will be more payment defaults and demands made on guarantors. Personal insolvencies are likely to increase as a result.

Winding Up Applications

The IRD’s enforcement activity has continued but the numbers have eased off slightly since June 2021. It was the petitioning creditor in 66% July’s liquidation application and continues to lead the way by advertising 67% of all creditor applications in the year to date.

In the year to July 2021, 418 winding up proceedings have been advertised and 255 of the named debtors (61%) have ended up in liquidation. The IRD has advertised 161 (63%) court applications. The table below shows the number of companies that have gone into liquidation after their liquidation applications were advertised and how many of those were advertised by the IRD.

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There is a belief held by some people that the liquidators of a company are paid by the person (or company) that appoints them and, in some cases, that is what happens – but not always.

How the liquidators get paid, and by whom, will depend largely on the situation of the company being liquidated, such as solvent or insolvent, shareholder or High Court appointment, but there are two broad categories –

• Payment from the assets of the company; or
• Payment from a third party – such as shareholders of the company to be liquidated or the applicant creditor for the High Court proceedings to liquidate the company.

The other possibility is that the liquidators will not recover any of their fees at all.

How are fees calculated?

For the most part, liquidator’s fees are calculated on the basis of an hourly rate at a level appropriate for the work being done.

Because issues in a liquidation are often not identified until a review is undertaken of the company’s books, records and affairs, it is hard to estimate the probable fees at the commencement. Having said that, it is common for an approximate level of fees to be discussed with the client and an upfront payment, or an indemnity, for an agreed amount to be obtained.

There will also be disbursements to be covered, such as for the public notices required, storage of company records, insurance cover for assets etc.

Solvent Liquidations:

This type of liquidation arises when a company is able to pay all its creditors but is no longer required for various reasons, such as restructuring or sale of a business. The liquidator’s fees will be covered from the assets, or payment from the shareholders, of the company, generally with an agreement with the shareholders on the level of fees to be taken. The fees to be taken in a solvent liquidation are generally much easier to predict as there is no requirement for a detailed review of company records and no unrelated parties seeking payment.

Voluntary Insolvent Liquidations:

Voluntary insolvent liquidations come about when the shareholders make the decision to cease trading a company and appoint liquidators because the company is unable to meet its obligations to creditors as they fall due. In some instances, that decision is brought about by the receipt of a statutory demand from a creditor seeking payment.

If the insolvent company has assets that are not subject to any security or are a category of asset that is firstly available to preferential creditors, such as accounts receivable, the liquidators will generally get payment of their fees from the realisation of those assets.

If there are no assets, then the liquidators will seek to obtain payment of an upfront fee or an indemnity from the shareholders before commencing the liquidation. The level of the upfront fee or indemnity will depend on the estimated time and costs for completion on the basis of the known issues.

As mentioned earlier in this article, it is not always apparent at the start of a liquidation what the issues will be, and this can lead to substantial extra time and costs being incurred by the liquidator. In some instances, the liquidator will follow through with those identified issues and recover funds as a result which are available for their fees, but they may also finish without any ability to recover those costs.

Insolvent High Court Appointments:

These liquidations arise when a creditor of a company makes application to the High Court for a company to be liquidated because it has failed to remedy a statutory demand that was served on it.

In this form of liquidation, solicitors acting for the applicant creditor will approach a liquidator, prior to the hearing, for their consent to being appointed as liquidator of the debtor company.

It is not a common practice for the applicant creditor to make any payment to the liquidator for these appointments and the proposed liquidators are not in the position of being able to approach the shareholders of the debtor company for any upfront fee or indemnity.

It is in this type of liquidation that the liquidators are at the greatest risk of receiving no payment for the time and costs incurred. A liquidator, approached by a solicitor to consent to a High Court appointment, does not have to say yes and, if no liquidator gives consent, the Official Assignee (OA) can be appointed.

The liquidator’s review of the company records, once received, may lead to realisable assets, such as accounts receivable or GST refunds, which could be used to recover fees. There may also be potential actions against the directors, if there have been any breaches of duty, but these matters are time consuming to investigate and very expensive to pursue if Court action is required.

It is sometimes the case that a potential cause of action will be identified against a director, or some other party, that could, if successful result in funds being available, not only for liquidator’s fees but also for distribution to creditors, but they cannot be pursued because of a lack of funds.

Conclusion:

If you would like more information on the possible costs of a liquidation, please contact one of the team at McDonald Vague.

Colin Sanderson
9 August 2021

It’s day three of the latest Level 4 lockdown and, while we know the current lockdown is going to impact businesses, there’s still a lot we don’t know.  It’s not yet clear how long we will spend in Level 4, what impact the latest lockdown will have on different business, or what overall impact on the New Zealand economy will be.  Last week, most were expecting an OCR increase.  On Wednesday, it was held at 0.25%, due at least in part to the lockdown.

The Level 4 rules are a bit different to the last time around and can be found here.  The current locations of interest are listed here.  

Our team is working remotely and are available to discuss what can be done to help your business respond to the latest lockdown and are offering free 30-minute consultations with one of our recovery specialists.  While there will be some overarching commonalities, each business’ needs are unique and best served by tailored advice.  Don’t hesitate to reach out on This email address is being protected from spambots. You need JavaScript enabled to view it. or 09 303 0506 for a confidential discussion. 

Government Short Term Financial Support

One of the biggest immediate concerns for most businesses is the negative effect a lockdown has on revenue.  Estimates vary but economists and the Finance Minister have put the cost of the current Level 4 lockdown at somewhere between $200 million and $300 million a day.  The Finance Minister has said that there is around $6 billion available to respond to the current COVID-19 outbreak.

The Government has a financial support tool that helps businesses and individuals identify the support options available to them, which can be found here, and has set up a COVID-19 helpline for businesses, which can be reached on 0800 500 362 (North Island) and 0800 505 096 (South Island).

Businesses who suffer a drop in revenue because of the increase to Alert Level 4 will be eligible to receive the:

• Wage Subsidy (requires a drop in revenue of at least 40%): Applications are open for two weeks from 9 am on Friday, 20 August 2021. 
  • The wage subsidy covers wages for two weeks and the amounts available per employee have been increased to $600 or $359 per week, depending on the employee’s hours.
  • Applications are submitted to MSD.  The eligibility criteria can be found here and applications can be submitted online using the employer application forms.  The application process for large employers (80 or more employees) can be found here.  
  • The payment must be used to cover employees’ wages.
• Resurgence Support Payment (requires a drop in revenue of at least 30%): Applications are open for one month from 8 am Monday, 24 August 2021. 
  • Those eligible receive a one-off payment of $1,500 per business plus $400 per full-time employee and can receive up to $21,500.
  • Applications are submitted to the IRD through myIR.  The eligibility criteria can be found here  
  • The payment must be used to pay business expenses.
  • The payment is not subject to income tax.
  • Applications are submitted to the IRD through myIR.  

Businesses who have employees who have, or may have, COVID-19, are eligible for:

• Short term absence payments $350 per worker per 30 day period for any worker who needs to self-isolate while waiting for a COVID-19 test result and cannot work from home.
• Leave support for employees who are self-isolating at the direction of a health official and cannot work from home. Each lump sum support payment covers two weeks and was previously at the same weekly rates as the wage subsidy.

These schemes are administered through MSD. 

Other Financial Measures and Support:

• The debt hibernation scheme, which allows businesses to delay payment of their debts but requires debts to be paid in full, has been extended to 31 October 2021.
• Applications for the Small Business Cashflow Loan, administered through the IRD, remain open until 31 December 2023. Businesses who have seen a downturn of at least 30% compared to the same month the previous year can borrow $10,000 plus $1,800 per full time employee (up to $100,000).

MVP Business Support

Businesses that address issues at an early stage generally have better outcomes than those who delay acting.  There are a number of different business restructuring, turnaround, and insolvency options available that can be employed to help achieve the best outcome.  Those processes include:

• Creditor Compromise: If the business is viable and, with creditors’ support, can return more to creditors than they would receive in liquidation, a creditors' compromise could be the solution.
• Voluntary Administration: If the business needs to restructure its debt and outside assistance to trade its way out of its financial difficulties, the business might be a good candidate for being put into voluntary administration. 
• Receivership: If a secured creditor (including shareholders with a general security over the business’ assets) needs to protect it’s interests, its best option might be to appoint receivers. 
• Liquidation: If it’s time to exit the business, for any number of reasons, it might be time to put the company into liquidation. 
• Part 5 Proposal: If personal exposure arising personal lending and personal guarantees needs to be addressed, it could be worth exploring a Part 5 Proposal.   

Our firm is a registered service provider with the Regional Business Partners, which means that we have access to co-funding for some of our business advisory and turnaround services.  If your business has been directly affected by New Zealand’s closed borders, some services are fully funded.  If you’re not yet registered with the Regional Business Partner Network, you can register here. 

We are also still honouring our Empty Company offer for businesses that have stopped trading and no longer have any assets.

Our insolvency specialists are available on mobile:

We have passed the halfway point of 2021 and it is now less than six months until Christmas. Quite a bit has happened in the first half of the year so let’s look at how the NZ economy has tracked to June 2021.

The global economy continues to face a number of challenges, which are impacting many countries to varying degrees:

- Countries are fluctuating in and out of lockdowns as a result of ongoing COVID-19
- Shipping delays are continuing
- There are materials shortages affecting many industries
- Consumer demand for goods continues to rise while international travel continues to be restricted

We see the building industry as one to watch. In New Zealand, COVID-19 brought a further increase in demand for housing as New Zealanders returned from overseas, many of them with house deposits. Because of ongoing shortage of housing supply (materials and labour), upward pressure is being put on housing prices. While the building industry appears to be picking up, the travel bubble between Australia and New Zealand may entice some builders to Australia to take advantage of the better wages and lower cost of living on the other side of the ditch, which will not help New Zealand’s house shortage.

Core Logic has reported that house price growth slowed down in May and June 2021, especially in the larger centres. It is too early to know whether this decrease in growth is the result of changes to the interest deductibility rules for property investors and/or an increase in the bright line test from five to ten years. Interestingly, mortgage rates under two years decreased while mortgage rates over two years increased in June 2021. As we now know, the short-term interest rates have since increased. We will also need to wait to see whether property investors start to exit the market, once they are faced with higher tax obligations on their rental properties, and whether fewer property investors will enter the market now that the bright line test has doubled.

As we anticipated in May 2021, we are seeing early signs that inflation is returning to the economy. Expectations out of Wellington are that inflation will be above the 1% to 2% target in the June and September 2021 quarters and will then return to within the target range after that. Experience would suggest that prices are quick to go up but are slow to come down and it is unlikely that the shipping delays and supply shortages currently being experienced will be resolved by the end of the year.

Off the back of the inflation figures, economists have been reviewing their OCR predictions and many are now expecting to see interest rates rise further before the end of the year. It is not surprising that the banks have already increased interest rates. Many are now expecting that the OCR will be back up at 2% by the end of 2022 to keep inflation under control. For new home owners, the predicted increases in mortgage rates could see those currently locked in at low rates really struggle with repayments when those fixed rates expire.

If you want to have a free chat about any issues your business is experiencing or about any other insolvency matter, contact us on 0800 30 30 34 or email This email address is being protected from spambots. You need JavaScript enabled to view it..

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

Company insolvency appointments for June 2021 were:

- similar to May 2021
- higher than June 2020
- similar to June 2019 – the first time the 2021 monthly figures have been close to the monthly figures in 2019

Insolvency numbers have increased steadily over the June 2021 quarter and are higher than the same quarter last year. This increased activity is likely the result of a jigsaw puzzle of factors including the increased pressure being put on companies by the IRD, labour shortages in many industries, seasonal show downs in some sectors, and the very limited number of overseas tourists that have visited since New Zealand’s boarders were first closed. While we saw Wellington move to Alert Level 2 for the last week of June 2021, affected businesses who met the Resurgence Support Payment criteria were able to apply for a lump sum government support payment.

Notable insolvency appointments for the month:
• ASB Showgrounds (Auckland Agricultural Pastoral and Industrial Shows Board) went into liquidation. It has been reported that the cost of the ground rent made it unsustainable for the venue to continue operating.

While there were no other companies of note that had insolvency practitioners appointed in June 2021, there were quite a few appointments in two industries, despite perceived booms in both industries:
• building and construction
• transport and logistics

Personal Insolvencies - Bankruptcy

The June 2021 personal insolvency figures closely mirror the May and April 2021 figures, in both numbers and breakdown by type. If inflation and mortgage rates both rise, as predicted, we expect the increasing cost of living will see more payment defaults, which will likely result in more personal insolvencies.

Winding Up Applications

The IRD’s activity continued to ramp up through to the end of June 2021. It was responsible for advertising 76% of all June 2021’s liquidation application.

There has been 341 winding up proceedings advertised in the year to June 2021 and 210 of those (61%) have ended up in liquidation. The IRD has been the petitioning creditor in 130 of those applications (62%).