Economic recap

International and domestic market factors continue to affect the economy and have and effect on businesses in New Zealand. Supply shortages, increasing costs of living and inflation continue to put pressure on businesses margins, this coupled with an inability to find staff to fill empty rolls is causing a number of issues for businesses trying to retain staff or grow.

Unsurprisingly the July 2022 OCR announcement saw the Reserve Bank lift the Official Cash Rate a further 50 basis points as indicated in their earlier announcements. The OCR lifts are expected to continue for the remainder of the year and into next year as they use what tools they have available to try and tackle rising inflation.

In that vein inflation figures for the June Quarter saw inflation continue to increase bringing yearly inflation up to 7.3% slightly ahead of the economics and media prediction of 7%

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

June 2022 saw drop-in appointments in line with prior years. It remains the lowest June to date but starting off a lower base of total insolvencies for the year it is not unexpected.

Of note compared to prior months solvent liquidations have begun to tail off baking up only 18$ of total appointments while court appointments remain low at only 26% of total appointments. We will likely not see this rise until the winding up applications begin to peak, court appointments will follow in the coming months following this event.

Notable Mentions:

NZ Medical Association Placed into liquidation in July following an urgent liquidation recommendation from its board.

Insolvency by Industry

“Construction & Property Development” remain the largest chunk of the pie followed by “Accommodation & Food Services” makeing up over 60% of the total insolvency appointments in the month of June 2022.

Winding Up Applications

June 2022 saw a drop in winding up applications as non IRD creditors dropped off. IRD’s numbers have remained consistent, however.

We expect in the coming months IRD will likely be applying pressure to debtors to collect outstanding revenues. The reasoning behind this is IRD has 6 months remaining before we are into 2023 and an election year. Historically IRD have slowed their formal recovery proceedings in election years.

Given the large outstanding debt IRD currently has for PAYE, GST and income tax they will be wanting to get a wiggle on and bring those recoveries in.

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

The breakdown of personal insolvency figures continues to fluctuate with the only consistent one being No Asset Procedures making up 41 of the 102 appointments. Bankruptcies see a drop from 60 last month down to 39 this month with Debt Repayment Orders rounding out the last 22 personal insolvency appointments.

Of the 39 bankruptcies only 10 were the result of court appointments. We expect this will increase over the coming months if we see more corporate insolvencies, this leads to personal guarantees being called up after the business defaults.

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..

Statutory demands (or Section 289 notices) pose a big threat to New Zealand businesses. These are written requests from a creditor for a debtor to pay overdue debt, with a payment term of 15 working days.

A creditor can serve a statutory demand on a company if formal demands for payment or debt collection services have not proven effective and the debt is not disputed. It will contain details such as:

How much is owed.
The repayment time frame.
Contact details for the creditor.
Potential consequences.
Details for a right of dispute within 10 working days.

When a debtor is properly served with a statutory demand, the risk of winding up proceedings or even legal action becomes very real. There are six main courses of action when this occurs - read on to find your best course of action.

1) Pay the debt in full

If the debtor is able, paying the owed funds within the designated time frame is the fastest and simplest way to resolve a statutory demand. Debtors can also offer assets as security in order to improve their situation - a combination of security and a payment plan may be enough to satisfy the creditors.

Debtors should ensure this is done within the period outlined in the statutory demand, 15 working days.

2) Reach a compromise, offer security or compound the debt

Under Part 14 of the Companies Act 1993, debtors can enter a creditors compromise through a formal process. Outside of this, they may try and engage creditors in an informal compromise, offer security as above or compound the debt.

A formal compromise is a binding agreement and considers all creditors by class. A successful compromise will allow the company in debt to continue operating. It must be approved by a majority in number representing 75 per cent in value of the creditors (who vote on the matter).

An informal compromise often utilises funding sources not available through the liquidation process. If the company eventually does face liquidation, there can be some risk of clawback if certain creditors have been preferred.

A compounding of debt is a mutual arrangement between the creditor and debtor to discharge the initial debt obligation, and establish a new one in its place, often involving assets used as security.

If any of these options are pursued, the creditor must approve of the method and the potential outcome. Debtors should try and facilitate this within the 15 working day period.

Reaching a compromise with creditors is one option available to debtors. 

3) Dispute the debt

By the time a creditor serves a statutory demand, there should be no dispute over what the debtor owes. However, if there are further issues, debtors can make an application to set aside the statutory demand within 10 working days of receiving it. Engaging a lawyer is required.

From here, courts may choose to set aside the demand or accept a counter-claim or cross-demand. If there is a defect in the demand that causes injustice to the debtor (for example, a gross misstatement of the amount owing), the courts may take this into account.

4) Debate whether the statutory demand was properly served

Creditors must follow a specific process when serving a statutory demand.

It must be served upon the debtor in writing.
It must be delivered to either the company's registered office, principal place of residence or immediately to the director.
If the debtor feels a creditor served the demand incorrectly, there may be further grounds for dispute.

There are many ways to respond to a statutory demand in New Zealand.

5) Initiate a shareholder-appointed liquidation

Debtors can take this proactive measure to avoid costs to the creditor by entering voluntary liquidation within 10 working days of receiving a winding up proceeding or later with agreement of an applicant creditor a filed court proceeding.  An independent, shareholder-appointed liquidator will realise the company's assets and pay down debt.  

This can result in these processes:

The business closes and assets are sold.
The business is sold to a third party as a going concern.
The business is sold to management/directors as a going concern at market value (with consideration to phoenix company provisions)
The business is restructured.

6) Do nothing

If debtors do nothing to address or dispute a statutory demand and do not pay the debt, the next step is typically legal action. Within 30 working days of a failure to comply, the creditor can formally apply to the High Court to put the debtor company into liquidation.

An affidavit of service of the statutory demand will be filed, alongside an application for the appointment of a liquidator - typically referred to as a winding up application. However, even at this late stage, debtors can repay the debt or advance a compromise (with an adjournment granted by the court for creditors to consider it) and avoid further action.

What can your business do when it is served with a winding up proceeding in New Zealand? 

A creditor- or court-appointed liquidation can be set aside or disputed, provided there is enough evidence. This can help the debtor avoid court proceedings, but it still has to pay the debt. If debtors cannot set aside the applications, the court will appoint a liquidator that will take control in the same way it would during a shareholder-appointed process.

Get ahead of your debts

When served properly with a statutory demand, the consequences of inaction can be severe and long-lasting. To find the best course of action for your business, speak to the insolvency experts at McDonald Vague.

Also refer to this article for more information on statutory demands.

When it comes to due dates and business tax debt, the IRD don’t mess around. Business owners who shirk their tax obligations can quickly find themselves in trouble.  

If you know your tax bill is going to be bigger than you can handle, it’s important to deal with that as soon as possible – ideally long before it’s due. If you can’t pay your tax bill, you should look at the following steps:

CONTACT THE IRD AS SOON AS POSSIBLE

The IRD want to help you meet your tax obligations, so if you contact them as soon as you know there’s a problem, they can help you find a solution. It’s best to contact the IRD before the due date, if at all possible, as it increases your chances of being able to get favourable terms.

You should also file your tax returns on time, even if you’re unable to pay the tax owing. If you’re tax compliant or seeking to be, the IRD will most likely be happy to negotiate a payment arrangement for you to pay your debt off in instalments over time. This can help you with cash flow management while you try to turnaround the business.

If you are suffering from serious ill health then you may qualify for relief under the hardship provisions.

If your business has been adversely affected by Covid-19 then IRD will consider financial relief and instalment arrangements.  IRD can remit penalties and UOMI in these circumstances.   You may be asked to provide a 12 month cash flow forecast (IR591) in support, bank statements, credit card statements and accounting information including debtors and creditors.  To apply for financial relief you will be asked to complete an application.  You will need to provide the current value of the company's assets, liabilities and the position of your shareholder current account.  The current account will record your net drawings from the company.

Call the IRD on 0800 377 771, fill out an instalment arrangement form online, or see their website page on instalment arrangements for more details.

IF YOU'RE EXPERIENCING SERIOUS FINANCIAL HARDSHIP

In some circumstances, the IRD will write off an agreed amount of your debt if they determine – based on their criteria – you are in serious financial hardship. They will take into account your payment history, your current situation, and your ability to meet future obligations. You’ll need to fill in the Disclosure of financial position IR590 form and a 12 month cash flow forecast IR591 form.

Bear in mind the IRD will look carefully into your company expenditure and your shareholder current account and the viability of the business.  If it is determined the company is not viable, it may be recommended that the company is placed into liquidation or the IRD may initiate steps for that to occur.

WILL YOU BE PERSONALLY LIABLE FOR BUSINESS TAX DEBT?

In theory, your company structure is designed to protect your personal assets in the event of company insolvency or other financial difficulties. However, there are legal means to ensure you’re held liable.

Under a HD 15 of the Income Tax Act 2007, the Commissioner is able to go after personally-held assets of company directors and shareholders in order to recover tax debt. However, this only applies when director and stakeholders have entered into an agreement to purposefully deplete a company of its assets (an asset-stripping arrangement). Such an arrangement is also a breach of Director’s Duties. This clause is rarely utilised to recover debts.

Another Act, the Tax Administration Act 1994, makes provisions for non-compliance with tax laws. Under this Act penalties for a company’s non-compliance can be placed upon an officer of the company. A conviction under this Act could see a company director facing both a significant fine and time in prison. This same Act allows the commissioner to pursue a director personally for unpaid PAYE. The IRD has successfully brought many of these cases against company directors – in these cases the directors have been complicit in breaching their tax obligations.

Usually when a licensed insolvency practitioner is appointed to liquidate the company and following the liquidation process and payment of the realisations to creditors, any shortfalls including to IRD are written off.  Directors may face pursuit from company creditors who held personal guarantees and on the occasion by IRD for unpaid PAYE.   

ARE YOU IN TROUBLE WITH THE IRD?

If you’re having problems meeting your company tax obligations, or you are trying to make arrangements with the IRD to pay arrears, it's best to be proactive, before you find yourself in even deeper trouble.

If you think your business is in financial trouble contact us to see how we can help.  If you have received a statutory demand from IRD, do not delay or next your company will be served with a winding up proceeding to place your company into liquidation.  If you want to understand your options you need to make enquiry promptly.

Company strike off or dissolution is the process where a Limited Company is removed from the Companies Office register. Following removal, the company ceases to exist.

There are essentially three options to end a New Zealand company. These are:
• A short-form removal from the companies register (solvent companies)
• long-form removal – a solvent liquidation or insolvent liquidation, or
• doing nothing, failing to file an annual return with the Companies Office (“the short cut method”).

The third option is not recommended. The short and long form methods minimise risk. Failure to file an annual return does not put an end to debt in an insolvent company. It also does not provide any certainty that the company is at an end.

Many directors and shareholders of companies facing financial difficulties are tempted to simply abandon the company and fail to file an annual return and following the expiry of one year, the company is struck off. Failing to file an annual return is actually an offence under the Companies Act 1993. The shortcut approach comes with risks and the prospect of company restoration. The effect of strike off on a company that has not dealt with all assets and liabilities in the proper process can include:

• for a solvent company, share capital and capital gains are not distributed tax free, shareholders could be liable for tax on distribution and this can create overdrawn current account issues.
(To distribute capital gains tax free, they must be distributed after the liquidation process has started. The process is started by completing a resolution to liquidate a company)

• the forfeiture of tax credits held at IRD – which can only be refunded if the company is restored;

• the loss of losses carried forward and imputation credits (unless company restored);

• assets not distributed prior to strike off become crown property unless the company is restored;

• land and property held in the company name cannot be transferred;

• A strike off is not a means to avoid a contingent liability claim;

• A strike off is also not a means to avoid a s 385 prohibition notice;

• reinstatement by the Registrar is straightforward if the company is a party to legal proceedings and those proceedings commenced prior to removal;

• reinstatement by the Registrar is able to be advanced if the company was in liquidation or receivership or both at the time

• The court has a wide general discretion to restore a company to the register if it is satisfied for any other reason, it is just and equitable that the company be restored to the register (s 329(1)(b));

• there is no statutory time limit for restoration to occur;

• there exists the potential review by the Registrar that proper books and records have been kept under Sections 189 and 194 of the Act, records to include documents, minutes of meetings, resolutions of shareholders and directors, copies of written communications to shareholders, copies of financial statements and accounting records. (Failure to keep accounting documents at the Company’s registered office is an offence punishable by a fine of up to $10,000 for both the company and directors).

A company that has been restored to the register is deemed to have continued in existence as if had never been removed from the register: s 330(2). This means any interest/penalties that have been incurred in the period from strike off to reinstatement are due. It also means company records must be brought up to date.

The short form liquidation or formal liquidation process may be a more costly exercise but avoids the headache that can be faced with the consequences of a company restoration. The short-form removal process is best suited to a company that has little trading history and/or has held minimal assets, is subject to low commercial risk, and no contingent liabilities.  A solvent liquidation costs more than a short-form removal but minimises the risk of the company being reinstated through a creditor application.

An insolvent liquidation involves an independent licensed insolvency practitioner managing the winding down of the company and the appropriate dealing of assets and distributions.

For advice on the options and the best way to wind up a solvent or insolvent company contact our team at This email address is being protected from spambots. You need JavaScript enabled to view it. 

Economic recap

Businesses continue to be affected by overseas economic factors, from supply line shortages to rising costs. Rather than focus on factors covered in earlier articles we will look at what’s coming up in this month’s article.

Discussions without GRIP partners in Australia and the UK suggest that NZ may be 1 year away from seeing a notable shift in insolvency appointments. As a comparison we appear to be six months behind Australia who have seen the Inland Revenue ramp up collections and pressure and have begun to see insolvency workflow. Australia confirm they are roughly 6 months behind the UK who have seen themselves get a lot busier in recent months.

The NZ borders are set to fully open from 31 July 2022, this will be something the ski fields, tourist operators and Queenstown are looking forward to. How this will affect business is to be seen if the hoped-for inflow of tourists eventuates. At present net migration for the year is negligible as New Zealanders take long delayed OE’s and trips out of the country in our long winter months. The brain continues, putting further squeeze on businesses trying to find the right employees.

The 25 May 2022 OCR announcement saw the Official Cash Rate bumped up 50 basis points to battle inflation, it was made clear that the intention is to raise it further between now and this time next year to try rein in inflation. Most of this has already been priced into mortgage and lending rates, however.

On the other hand, recently released GDP figures for the March Quarter show a drop of 0.2. We will require a further drop in the June quarter to be in a “recession”. This will have a negative effect on business confidence. Why does it take so long to work out a quarter's GDP figures in this digital age? The stats were released on 16 June 2022, a full 77 days after the quarter had ended. Timely information is useful information.

The NZ media has a new focus on insolvency especially the construction appointments and writing a story around it. Leading to uncertainty in various sectors.

Looking at the Xero SME index graph, May 2022 comes back down 6 points after Aprils jump up. The other factors measured in the Xero SME insights show sales tracking down, time to be paid tracking up and wages tracking upwards. All these factors will be making business harder.

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

Solvent liquidations are beginning to return to normal levels in the month of May making up 34 of the 138 appointments. Court appointments however continue to remain low with only 25 appointments for the month, while shareholder-appointed insolvent liquidations make up 71 of the total appointments.

Comparatively with past year May’s this sets a new low, but this is typically the spot where appointments level off for the year and slowly decline into the Christmas months. As mentioned in numerous past articles on insolvency stats IRD still has a lot of work to do in taking enforcement steps against delinquent debtors, to emphasise the point only 7 of the 25 court appointments were the result of IRD applications to wind up in the month of May.

Notable Mentions:

The Tasting Shed Covid 19 and associated lockdowns brought an end to the TV chef Ganesh Raj’s West Auckland establishment.  DDL Homes Ormiston Receivers were appointed, and the company entered Voluntary Administration by the developments financer when concerns were raised about the construction progress
Jonesy Construction Another casualty in the construction sector of increased cost of goods and locked in pricing.  NZ Medical Association Budget and cashflow projection show that the financial situation was dire, and received an urgent liquidation recommendation from its board.

Insolvency by Industry

“Construction & Property Development” once again run away with the largest chunk of the pie. This is unsurprising for anyone with an eye one the media and constraints that have been affecting the sector in the last year and a half. “Accommodation & Food Services” help make up just under 60% between the two industry sectors, but this is to be expected given the continued closed borders and slowdown due to winter trading.

Winding Up Applications

May winding up numbers have managed to match 2021 levels. The difference in applicant creditors is quite noticeable, however. May 2021 saw IRD making up 77% of the applications while May 2022 sees IRD only making up 44% of the total applications. This remains the highest it has been as a percentage since October 2021 so shows IRD is beginning to pursue its extensive debtors list but still well below the level it should be at.

Notable Applications:

Property investment firm Propellor Property Investments and related entities have had winding up applications filed against them by IRD for unpaid taxes. The director has advised the applications have been dealt with and are strong arm tactics from IRD.

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

Personal insolvency figures remain below past years May levels. While the numbers have ticked up since April 2022 the lift saw a doubling in bankruptcy figures from 28 to 60 while No Asset Procedures were up 33% to 40 for the month. Debt repayment order figures dropped to single digits for the month.

Of note, court application bankruptcy proceedings have finally begun to catch up to debtor applications and were just under 50% of the total bankruptcy appointments. Previous months had seen court appointments making up only 1/3rd of the bankruptcies.

Notable Appointments:

Ex-All Black Rodney So'oialo and his wife Marilyn So'oialo (bankrupt) continue to be chased by debt collectors in relation to debts incurred in 2019 that remain unpaid. Debt collectors have had difficulty serving documents on Rodney So'oialo due to him working as a rugby coach in Sri Lanka and Malaysia.

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..