With the availability of government subsidies becoming harder to obtain the Inland Revenue Department (IRD) and Ministry of Social Development (MSD) have begun the process of reviewing a business’ entitlement to the various covid subsidies they had received.

It was well publicised at the time that both the wage subsidy and resurgence support payment scheme were “high trust” models, with emphasis placed on getting the funds out to business’ in need quickly, rather than a proper review of the evidence upfront.

Initially the “audits” of the wage subsidy scheme by the MSD were more of a check box exercise, where they accepted verbal confirmations from business owners rather than conducting a proper review. This subsequently resulted in the Auditor General criticizing the MSD’s approach, leading to a tightening of the review procedures.

Prosecutions began from mid-2021, with recent decisions in early-2022 against individuals who took advantage of the wage subsidy scheme; conviction hearings have yet to be heard at the time of writing. Reviews by the IRD of the resurgence payment scheme, have picked up several business’ that should have paid back the wage subsidy, as they did not qualify for it. One company that was caught out chose to enter an insolvency procedure as they did not have the funds available to meet the repayment.

No doubt both the MSD and IRD investigations into businesses that received the support will be ongoing.

Our discussions with a number of accountants and businesses confirm the general consensus that the year ended 31 March 2021 and 2022 were good years provided you did not operate in the Hospitality, Tourism or Events industry. Given this general vibe it makes sense that further investigations should be undertaken by IRD and MSD. As of 22 February 2022, only $703 million had been repaid of the billions of dollars spent on the Government support schemes. There are likely substantial further recoveries to be made from business’ that were not entitled to them.

With any review, both MSD and IRD are focusing on 2 points. 1. Was the business entitled to apply for the schemes and 2. How were the funds spent upon receipt by the company.

The information they have sought to establish these two points is as set out below:

Six weeks bank statements, cash receipts and invoices prior to the Covid event

The documents requested will look at whether the business was entitled to apply for the scheme. When the schemes were commenced the business needed to have a trading history exceeding three months prior to the covid event, this was then changed to one month to allow new businesses to apply for the scheme and not be unfairly disadvantaged by the Governments actions.

Once it was established the business had traded for the minimum period through receipt of funds and invoicing history, they look to review the “six-week average/typical” revenue for the business in the pre covid event period. They check the amount claimed as the start was accurate and has not been inflated or artificially increased by funds earned outside of the six-week period. This pre covid event revenue figure is where the percentage drop is measured from. It is important that it is accurately measured and not inflated in any way. The review would also check that the funds received were from trading on the business and should be defined as revenue.

Further checks may also be performed on the invoices and customer base of the business, to ensure that the invoices are genuine. If longer than 30-day payment terms are in place with the business or to justify large cash sums that have been received and are outside the normal course of the business’ trading activities. This would include providing the contact and details of your customers.

Purchase invoices/receipts & bank statements

Next up is the look into how the funds received were spent.

If the business claimed the wage subsidy for an employee; did the funds go to the employee? PAYE records are easily used to establish the individual was an employee prior to the covid event. If the IRD’s MYIR records are insufficient, or they were a new hire than additional evidence by way of employment agreement or payment of wages by bank transfer and timesheets for the employee will be required. For owner operators, they will check that the owner has drawn a wage in the past, otherwise the steps undertaken when checking the business had been trading for 1 month above will be sufficient to prove this point.

If the business claimed the resurgence payments, checks will be performed to ensure the funds were not; simply paid to the owner, their related entities, or banked and not used. This will be through providing invoices and bank statements showing the funds were paid out and to whom.

Bank statements and income invoices for the period applied for.

Once it is established that the business was entitled to the funds and that they were spent appropriately, the next check is to look at the percentage drop in revenue experience by the business or if they were a group of companies, that of each who claimed the subsidy, the percentage drop across the group was greater than the required percentage drop to qualify for the scheme. Checks will be made to check that the decrease in revenues was not achieved through the intentions of the business and its directors to defer the revenue to a later period.

While the percentage of the drop is important, they will also look through the figures to review the reason behind it. With the later rounds of subsidies available any drop in revenues had to be the result of covid and the government's restrictions rather than a usual seasonal slowdown or the intention of the business owner to work reduced hours.

The above information IRD or MSD can request, it is comprehensive in what it covers and certainly within their powers under the terms and conditions signed up to when you applied and received the subsidies.

If you have further questions on the above content or find yourself in a situation where you have been caught out and need to pay back subsidies be sure to reach out to one of our Licenced Insolvency Practitioners or email us on This email address is being protected from spambots. You need JavaScript enabled to view it.

COVID-19’s impact on the business world is unprecedented, presenting a challenge to all companies and businesses. Some companies have evolved quickly and some have or are falling behind.

Managing a business is a delicate balance anyway. The deadlines, the finances, cashflow, controlling costs, the need to generate income and improve margins, the human emotions, staff needs, skill shortages and with Covid-19 in the mix, it is simply hard to navigate.  Many businesses will rise to the challenge and get through it. Some businesses are no longer viable. Many have closed the doors or considering it.

Struggling NZ Business in First Quarter 2022 – the Why

NZ business owners have struggled in the last while with lockdowns, inflation, increased oil prices, increased freight, global impacts on the NZ dollar, increased interest rates and now we are facing the rapid spread of Omicron, self isolation, more working from home, the impact of protests/mandates and more uncertainty offshore.

Many NZ businesses are suffering and the latest support payments in March 2022 will barely put a dent in the fixed overheads let alone any variable costs. Cashflow is tight for many and the outlook uncertain.  Much of the downturn in business profitability being faced now is out of a business owners control. The statisticians for example say in Wellington foot traffic is down 47% on prior years. Auckland is down 38% of this time last year and 56% compared to two years ago. The prediction is 58% of hospitality businesses will close in the next month – some not indefinitely. 

The impact of Covid on business has been sombre. The company strike offs are on the rise. Debt collection activity is on the rise. The media are saying the probability of recession is rising from the emergence of Covid and the negative impact of high interest rates and inflation.  

It is not however all doom. There is some upside and some have had strong balance sheets with NZers spending in NZ. The dairy industry is doing well. As the borders open, tourism will change dramatically. Travel agents are seeing strong interest in bookings offshore for holidays and to visit family/friends. Some businesses will see an upturn in the near future. There is light at the end of the tunnel.

Options for Struggling NZ businesses – the How

If your business is at the point of spiralling out of control, speak to your professional advisors who may be able to help your business. The pressures now on business are high and it is difficult. There are options for struggling businesses to consider whether that be to restructure or to bring the business to its end.

There are three rescue procedures in NZ, the compromise (Part 14), the Court approved scheme of arrangement (Part 15) – an option seldom used, and Voluntary Administration (Part 15A).

Liquidation is not a rescue procedure. It is usually a terminal procedure. Liquidators typically trade only for a short term for the purposes of the liquidation. The purpose of liquidation is to realise and distribute assets, not business survival.  Some companies however advance liquidation for the purpose of restructuring and to purchase back part of the business from the liquidator (at market value). Some companies advance liquidation with a known purchaser lined up to purchase the business in a clean structure. The consideration attributed is often pre approved by the secured creditors in these cases.

Receivership can be a rescue procedure. It can result in the rescue of viable parts/businesses but the primary duty of a Receiver is to get the best return for the secured creditor (usually the bank). Business survival may be an outcome. Banks may agree to a VA proceeding to avoid the negative publicity from appointing a Receiver or to protect the value of the business goodwill achieved from the stay in an Administration.

A company compromise under Part 14 of the Companies Act 1993 is a useful method without (in theory) having to go to Court. There is however no automatic moratorium (like with a VA) so sometimes you go to Court anyway. A compromise requires the identification of classes of creditors and 75% approval by class. There is often no outside independent manager involved. The compromise is the likely least expensive option but it requires approval to essentially be assured in advance. It works well for smaller companies with lesser creditors involved.

A Voluntary Administration is advanced where the company is cash flow insolvent or likely to become insolvent. No Court application is required. The Board of directors can appoint an Administrator. If there is a winding up application (by a creditor) on foot, the Court will likely adjourn the winding up application if the Court is satisfied that it is in the interests of the creditors (Section 239ABV, Companies Act 1993).  A business must be truly viable to be successfully rehabilitated. The appointment of an administrator for any other reason apart from rehabilitation is unlikely to gain the requisite support.

Liquidation versus Administration
A liquidator can only trade on for limited purpose of winding up. An administrator on the other hand has wide powers including the power to borrow. Some contracts will have termination clauses on liquidation but not on Administration. Both options have their advantages.
The best option is best discussed and well considered before advancing. Contact our team for advice on the options available if your business is in need of rescue, restructure or an orderly termination.

If any of these options may help you bring an end to a messy situation or to survive and thrive, contact one of our Licensed Insolvency Practitioners or email us at This email address is being protected from spambots. You need JavaScript enabled to view it. for some advice.

Economic recap

With inflation figures for the final quarter of 2021 coming in at 6%, it was of no surprise that the OCR would be getting a lift from the Reserve Bank, the question was how much? Last month we mentioned the possibility of a 50-basis point lift with a few commentators backing this size lift. We ended up seeing a 25-point lift with the Reserve Bank using strong language that the next OCR review would likely see the rate lift 50 basis points.

The consensus seems to be that with the invasion of Ukraine, we will see inflation continue its upward trend for the year. Adding to the trend are the food cost increases and the possibility petrol prices will tip $3 per litre before too long. Depending on how high it goes is yet to be seen, there has been mention of inflation at 10% by the end of the year and petrol at $5per litre. While this may seem a long way to go from our current levels, we still have many months to go in 2022. No doubt our council rates review due out in March 2022 will show a lift in rates prices for all homeowners causing more inflation pressure.

Recent house sale volumes to date show a fall in sales for the January period, as pressures continue to mount on borrowers making financing more difficult to obtain. For SME’s business lending continues to remain difficult unless secured over a property but even that will come under pressure with the expectation of falling property values.

Cashflow should in our opinion be the business owners primary focus alongside a focus on the quality of any expenditure. For example review whether your cash outflows are paying core debts/trading obligations or being applied to payment default costs/interest. Is your business getting ahead or likely to. Are you favouring one party over others? You should not be without advice.

With increasing Omicron cases day by day, the peak is expected by the end of March; the government has introduced further business support. The comparison period is for the 6 weeks prior to 15 February which includes the Christmas period, a traditionally quieter period for businesses, meaning that this will be a difficult support payment for businesses to qualify for. At present Hospitality and Retail continue to struggle, as people treat the rising cases as reason to maintain a self-imposed lockdown and everyone now seems to know someone who has Omicron.

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

Corporate appointments for January 2022 are similar to figures from previous years. As expected, court appointments over this period are non-existent given the Christmas closedown for Solicitors and Courts.

66% of the liquidation appointments are made up by insolvent shareholder appointments, the remaining appointments are solvent shareholder appointments.

To date it looks like the February appointments will follow past year trends but whether they will reach the 2020 and earlier year levels, we will only know at the end February.

Insolvency by Industry

“Construction & Property” industry company appointments continue to make up the largest sector. These figures include both solvent and insolvent appointments. “Accommodation and Foods Services” have risen to 3rd following Financial and Insurance Services. These three sectors total over 50% of the total appointments for January 2022.

Personal Insolvencies – Bankruptcy, No Asset Procedure and Debt Repayment Orders.

Personal insolvency levels are at their lowest all-time levels since all 3 personal insolvency options became available to the public.

Of the of personal insolvencies figures, No Asset Procedures made up just under 50% of all insolvency procedures.

Winding Up Applications

Based off the numbers that were seen in December 2021, it is hard to not go up from here. As with any build back up, this will take time, in addition to the bulk of solicitors and professional services firms taking at least half of January off as happens every year with the Christmas closedown.

If you want to have a chat about any points raised or an issue you may have you can call on 0800 30 30 34 or email This email address is being protected from spambots. You need JavaScript enabled to view it..