Selling your business and ceasing trading is a significant milestone, but what happens to the company itself? While some business owners leave the company dormant, others take proactive steps to formally close it. The best approach depends on several factors, including tax efficiency, legal certainty, and cost considerations. This article explores the options available, the benefits of a solvent liquidation, and how to manage post-sale company affairs effectively. What Are Your Options? Once you have sold your business and ceased trading, you generally have two primary options for dealing with the company: 1. Short-form removal from the Companies Register 2. Formal solvent liquidation The choice depends on factors such as outstanding liabilities, retained earnings, tax implications, and the level of…

2024 was a year that got progressively busier for insolvency practitioners and it looks like it will carry on into 2025 based on the Jan figures. The economy continues to struggle on, with businesses facing shrinking margins and decreased demand. The OCR began to drop from the middle of the year, earlier than originally indicated (originally projected to be mid 2025) with the next announcement due out in a few weeks, pundits seem to be predicting another cut of 25 – 50 points. To date these drops have yet to have the desired effect due to the 12-month lag between the drop taking place and the effect being felt. Latest unemployment figures released in January showed the level of unemployed…

Paying tax debts to the Inland Revenue Department (IRD) on time is a critical obligation for businesses in New Zealand. Neglecting this responsibility can lead to severe repercussions, including statutory demands, winding-up notices, and even liquidation. The New Zealand Herald reported that IRD ramped up compliance efforts in January 2025, following last year’s Budget boost. This trend is continuing. Companies failing to pay taxes are facing swift action, including liquidation applications. The IRD appears to have "started the war drums early." We discuss the importance of timely IRD debt payments, the benefits of proactive communication, and practical steps businesses can take to manage tax obligations while navigating financial challenges. ________________________________________ Why Timely Payment Matters IRD tax debt is a legal…

2024 saw a steady rise in corporate insolvencies across the year, driven by a number of factors including businesses shrinking margins, increased creditor action, historical debts incurred over Covid catching up with businesses, a stalled property finance market along with an increasing Official Cash Rate and a decrease in consumer spending amongst others. A key creditor of every business in NZ the Inland Revenue Department, has awoken from its Covid induced collection policy slumber and is now vigorously pursuing its delinquent debtors with increased funding coming from the government to do so. The most recent statistics out of IRD show that they have 8 billion dollars outstanding that need to be collected from individuals ($2 billion) and businesses ($6 billion).…

For solvent companies that have ceased trading, particularly those that have made a capital gain through the sale of their business, now is the ideal time to consider a solvent liquidation before the end of the financial year on 31 March. Under New Zealand law, specifically Section CD 26 of the Income Tax Act 2007, companies that have sold their business at a capital profit can distribute that profit tax-free to their shareholders upon liquidation, provided the transaction was conducted at arm’s length. Why Liquidate Before 31 March? 1. Maximising Tax-Free Distributions o A solvent liquidation ensures that capital profits from the sale of a business can be distributed tax-free. o Delaying the liquidation may expose the company to changes…

Following another OCR drop (50 points) we are now heading into the Christmas break with no new announcements till February, 3 months does seem a long time to wait for any further changes. Once again this will take some time to flow through to the rest of the economy, but it will have an earlier benefit for those borrowers rolling 6 monthly mortgage periods or on the floating rate. There continue to be a number of interesting insolvent businesses covered by the media, particularly the regional publications from pie makers to solar providers. The expectation continues that there will still be further larger businesses to fail as the recovery continues and the IRD keeps pressure on businesses with arrears to…

The festive season is a time for joy and giving, but for many businesses, it also presents challenges with cash flow as customers struggle to settle their accounts. Managing overdue debts effectively during and after the Christmas period is critical for maintaining financial stability. What are the best practices for handling overdue debts, responding to excuses, and escalating action when necessary under New Zealand law? 1. Proactive Debt Management: The Pre-Holiday Checklist Communication Is Key: Pre-emptive Reminders: Send reminders about due invoices early in December, emphasizing the importance of payment before the holiday break. Flexible Arrangements: Offer payment plans or early settlement discounts to encourage compliance. Assess Your Accounts Receivable: Prioritize high-value debts and long-overdue accounts for immediate follow-up. Conduct…

The end of one year and the start of the next year can be a challenging time for many business owners, especially with extended breaks over the Christmas and New Year period taken by staff. The pressure is compounded by the need to settle various financial obligations, from employee holiday pay to tax payments. Many businesses face the strain from having to pay employees holiday pay entitlements, a period where income is not being generated due to closure and then to face IRD obligations such as November GST due 15 January, Paye due on 20 January, Oct to Dec FBT due on 20 January, provisional tax due on 15 January and for the larger employers more PAYE due on 5th…

Winding Up Applications Another big month with the 3rd month in a row posting new highs in winding up applications. This high was in large part driven by the IRD pushing through application before the Christmas closedown making up 87 of the 125 applications. All other creditor applications has remained constant when compared to the last three months in the high 30’s. We expect this drive from IRD to continue into November in a race to collect funds and apply pressure to derelict debtors before the courts close. It is important to keep in mind however that while this is a high when compared to the last five years it is off a very low base. The year-to-date applications (972)…

Running a business is a rewarding venture, but it also comes with its fair share of challenges. One of the most critical challenges a business can face is the threat of insolvency. Insolvency refers to a situation where a company is unable to meet its financial obligations and pay off its debts when they become due. If left unaddressed, insolvency can lead to the collapse of the business, affecting not only the company's owners and employees but also suppliers, creditors, and other stakeholders. We discuss some key warning signs that indicate when a business is in serious danger of insolvency and what actions can be taken to address the situation. Key Warning Signs indicating a serious danger of Insolvency 1.…

We are due for the October OCR announcement to come out this week with pundits predicting that we may see a 50pt drop given the current state of the economy. However, we won’t have the CPI and inflation figures available for public release for another few weeks/months so at this stage the OCR decision could conceivable go either way (hold or drop) In insolvency news, I understand we saw the first Licenced Insolvency Practitioner lose their license following a CAANZ disciplinary tribunal hearing for a number of breaches including misconduct, conduct unbecoming, Rules and Code breaches in insolvency engagements and non-response to NZICA. The full decision can be found here. Winding Up Applications September came in just behind the August…

For our 45th Insolvency by the Numbers, we once again visit our 2024 data set and review how August has tracked compared to earlier months and years. It has been a long time coming and surprised a number of pundits given the earlier language used by the Reserve Bank in its prior announcements, but they have dropped the OCR 0.25 basis points at their August 2024 announcement. As mentioned in out last issue this was expected for November 2024 but was brought forward perhaps yielding to the pressure, they were under from commentators and the media. No doubt they will be holding their breath in the hope that inflation continues to track down to their 1% – 3 % target.…