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 rising to 5.1%.

Winding Up Applications

January is traditionally one of the slower months for winding up applications being advertised (public holidays, Christmas break etc.) but not so in 2025. Last month there were more winding up applications than any other single month in the last 5 years (the next closest was October 2024 with 125).

What was this driven by? In a nutshell IRD. They advertised 100 of the 130 applications for the month. That's 3x what the advertised in January last year and 13 above their next highest months (August & October 2024).

If this is how the year is starting the courts will be pumping with liquidation work and the Official Assignee will be needing to hire a few new staff to deal with all the IRD work it will be seeing. Historically a fair chunk (around 70%) of the IRD applications end up in liquidation.

The 2024 total year applications were up almost 30% on 2023 and close to double the 2021 and 2022 total year figures. Definitely a sign of the times as creditors continue to get tough with debtors and pile on the pressure to recover their funds.

Of the total appointments for 2024, IRD made up 702 of the applications or 63%, the balance of the applications were made by all other creditors combined. The averages over the last 5 years for IRD applications is generally between 55% and 60% of the total (though January 25 was 77%). The IRD's activity remains up on past years as expected given the tax arrears they are trying to recover ($8 billion as at June 2024) through increased enforcement and the additional funding the government are providing them to achieve these recovery goals.

The IRD has continued with its 22-month streak of having more applications than all other creditors. The last time they made less applications was back in March 2023.

The Auckland High Court deals with more winding up applications than the rest of the country combined. That is a fair bit of creditor enforcement and a wide margin between Auckland and the rest of the country. Of interest Christchurch managed to nab the 2nd spot ahead of the capital, potentially the result of the slowdown in building work in the region following the rebuild finishing up and a general slowdown across the industry.

The top 5 were in the same order as the population cap from the Stats NZ 2024 data - Auckland, Canterbury, Wellington, Waikato & Bay of Plenty

Personal Receiverships

Personal receiverships jumped 50% in 2024 up from the 2023 numbers, comparatively personal receiverships soured 400%+ when compared to the 2022 numbers.

As a percentage those are big changes and appear to be driven by the preference of some lenders take towards obtaining a personal general security agreement from borrowers which allows them to appoint receivers upon default, rather than the traditional approach used by the bulk of lenders of relying on the, often slower to enforce, personal guarantee to recover their debts.

January 2025 has started slightly above January 2024 aligning with the winding up applications that we are likely to be in for a busy year of various insolvency appointments. This increase in personal receiverships is yet to be reflected in the formal personal insolvency appointments (bankruptcy, NAP and DRO) yet.

Because there is no public record or available reports on the result of the receiverships (unlike when a company is in receivership the report is available on the register) it is difficult to see how successful the appointment may be and if any funds are recovered along with what the costs involved were on each appointment.

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

December 2024 saw a jump on past years. The increase come from shareholder insolvent liquidations which have doubled on past years, while court insolvent liquidations have remained steady and solvent liquidations have seen a slight drop. January 2025 has started the year on a similar level to 2018 figures, so while not a massive start we have broken 100 appointments in January for the first time in 6 years.

Total insolvency appointments for the year continue to increase beating out all appointment figures back to 2013, so there have been more appointments in 2024 than in any of the last 10 years. With 2,784 appointments in the year. We expect the higher insolvency appointment levels will continue into 2025 at least due to a large backlog at IRD and a struggling economy affecting most industries and restricting consumer spending.

The total corporate appointments are still down 1000 odd appointments on the highs of 2009 when the levels were up to 3,797.

Solvent liquidations remained down on the long-term average (13%), while insolvent shareholder appointments in December far exceeded their long-term average of 51%. The other appointment types donated a point down on their long-term averages to see this rise. I have not provided the breakdown for January 2025 as it is largely insolvency shareholder appointments with the courts not dealing with winding up applications for most of the month.

The gap that has grown between corporate and personal insolvencies has continued to remain sizable; they are yet to return to their long-term trend of tracking each other. This has largely been caused by the rise in corporate insolvency and the continued low levels of personal insolvencies.

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

Personal insolvency appointment figures for Bankruptcy, NAP and DRO dropped to their lowest December seen in the above graph.

While we are expecting to see corporate insolvencies continuing to grow into next year, I don’t believe we will see a lift in personal insolvencies till early 2025. There is traditionally a slow down over Christmas and January, in part due to the closure of the courts but also as people return to work in February and have to deal with the Christmas overspend, this may be when we see a lift in personal insolvency figures.

Where to from here?

As mentioned last year moving into 2025 the expectation is that there will be further large businesses to fail as the recovery continues and the IRD keeps pressure on businesses with arrears to be recovered

There will be continued busy times for insolvency practitioners for the next 2-3 years as we deal with the tail from the latest recession.

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.

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.

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Why Timely Payment Matters

IRD tax debt is a legal obligation. Failing to pay it can:

• Accumulate Penalties and Interest: Outstanding tax debts incur penalties and compounding interest, significantly increasing the total debt over time.

• Damage Business Reputation: Non-payment can harm relationships with suppliers, creditors, and stakeholders.

• Trigger Legal Action: Persistent non-payment may lead to statutory demands, court action, or liquidation proceedings.
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 Proactive Communication with IRD

When facing financial constraints, the worst thing a business can do is ignore the problem. Instead, proactive communication with IRD is key:

• Engage Early: Contact IRD as soon as you anticipate difficulties in meeting payment deadlines.

• Explain Your Situation: Transparency about your financial position helps IRD assess your case fairly.

Contact McDonald Vague if you need help with reaching a settlement or negotiating an instalment plan.

By engaging early, businesses demonstrate good faith and increase their chances of receiving leniency.
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Preparing for Instalment Plans

An effective instalment plan requires careful preparation:

1. Prepare Cashflow Forecasts: Assess your income and expenses to determine what you can realistically pay without jeopardizing operations. You must be able to show you can honour any arrears and keep current debt up to date. Your business needs to show it is viable.

2. Prioritize Essential Expenses: Ensure critical costs like wages, rent, and key supplier payments are covered while allocating funds for tax obligations.

3. Monitor and Adjust: Regularly review cashflow forecasts and adjust your instalment plan if necessary, keeping IRD informed of any changes.
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What to Do (and Not to Do)

Do:

• Engage Early: Delay only compounds the issue.

• Keep Records: Document all communications with IRD and maintain accurate financial records.

• Seek Professional Advice: Accountants and licensed insolvency experts can provide tailored guidance and advocacy.

Don’t:

• Ignore Notices: Failing to respond to IRD communication escalates matters rapidly and reduces the options if you overrun deadlines

• Overpromise: Committing to payments you cannot sustain undermines credibility.

• Delay Filing Returns: Even if you cannot pay, file your tax returns on time to avoid additional penalties.
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Consequences of Inaction

Failing to address tax debt can lead to:

1. Statutory Demand: IRD may issue a statutory demand, requiring payment within 15 working days. Ignoring this can result in a court application for liquidation.

2. Winding-Up Notice: If the statutory demand is not satisfied, IRD can proceed with liquidation, effectively ceasing the company’s operations and appointing a liquidator to sell assets/business to recover debts.

3. Personal Liability: Directors may face personal liability if found to have traded recklessly while insolvent. Non payment of GST and PAYE (trust moneys) will create significant personal risk for the directors.
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Lessons from IRD’s Recent Actions

IRD is committed to enforcing compliance. Businesses must heed this warning: IRD is actively monitoring and pursuing non-compliant entities. The recent uptick in liquidation applications serves as a stark reminder of the risks of neglecting tax obligations.
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Conclusion

Managing IRD debt requires vigilance, transparency, and proactive planning. By engaging with IRD early, setting up realistic instalment plans, and maintaining robust cashflow management, businesses can navigate financial challenges effectively. Conversely, inaction risks severe consequences, including liquidation and personal liability for directors. Seeking professional advice can provide valuable insights and support, ensuring businesses remain compliant while safeguarding their operations.
The war drums of IRD’s compliance efforts have sounded. The time to act is now.  Contact us for a confidential discussion.

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).

The effects of this large debtor’s book will be seen in 2025 with increased winding up applications being pursued through the court (roughly 70% of these end up going into liquidation). At the same time there are a number of businesses that do not wait for the IRD to take action and take the appropriate steps themselves often under the increased pressure to pay the tax arrears while at the same time attempting to keep all other obligations current as they trade on.

Aside from enforcement action we have also seen the IRD announce and begin a new focus on certain industries for audits and checks particularly those that accept cash all driven by the extra funding being provided to IRD to take enforcement action. For some business this new approach may seem overbearing having had multiple years of little enforcement action over covid and the years following as the government funded businesses through small business loans and wage subsidies, it is however more inline with pre-covid IRD recovery action levels.

From a liquidation recovery point of view we are seeing that asset prices continue to hold up, but that could negatively change as the market becomes flooded with liquidated assets, coupled with less enthusiasm to finance those assets from lenders.
We predict a continuation of the short-sighted practice of shareholders drawing funds out of businesses without declaring annual salaries. If a business entity cannot afford to pay its director/shareholder (and the tax consequences) then there are probably far more problems in the business than the tax consequences of declaring a shareholder salary.

On many occasions it is better to acknowledge the business is not sustainable and its is better to close it than try to continue with increased risks mounting up.

We are expecting to see corporate insolvency to increase in 2025, it is important to keep in mind however that this is off a particularly low base following Covid. In 2024 we only saw the corporate insolvency levels return to 2013 levels, they remain 1,000 appointments down on the GFC where we saw appointments reach 3,700 per annum.
In 2024 we saw all sectors affected by the rise in appointments and this will continue into 2025. The surprise has been the liquidation of some quite long-standing businesses.
Construction is likely to remain subdued until house prices see some upward movement while physical retail and hospitality will continue to struggle in a tight economy where consumers are hesitant to spend.

On the personal insolvency side, we expect to see the rise we saw in 2024 to personal receiverships continue to increase. This has been driven by the rise in taking General Security Agreements over individuals as lenders have sought all-encompassing loan securities providing those lenders with another collection option, rather than just relying on Personal Guarantees which can be time consuming to enforce.

During 2024 personal insolvency (bankruptcy, NAP and DRO) reached some of its lowest levels and has yet to increase in line with corporate insolvency, we are expecting to see this increase in 2025. Individuals continue to struggle from the increased cost of living, while inflation may have decreased it is deflation, so the inflation experienced over the last few years has meant that prices rose and have continued to stay high while wages have yet to catch up. While we may see the OCR will likely decrease in 2025 it can take between 12 - 18 months for this to flow through to the economy.

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 in tax laws or other regulatory risks.

2. Avoiding Interest on Overdrawn Current Accounts

o If shareholders have overdrawn current accounts, these attract interest and have tax consequences. By completing the necessary winding up resolutions interest can cease to accrue.

o By liquidating before year-end, shareholders can receive distributions and tidy up tax affairs earlier bringing peace of mind.

3. Reducing Ongoing Compliance Costs

o Even if a company has ceased trading, it still has compliance obligations, including filing GST and income tax returns and maintaining financial records.

o A formal solvent liquidation reduces these obligations, costs and administrative burdens for directors and shareholders.

Solvent Liquidation vs. Short-Form Removal

While a short-form removal from the Companies Register might seem like an easier option, it does not provide the same benefits as a solvent liquidation in all cases.

Take Action Now

With the financial year-end fast approaching, now is the best time to act. By undertaking a solvent liquidation before 31 March, you can distribute capital gains tax-free, avoid unnecessary compliance costs, and ensure the company is wound up in a structured and compliant manner.
If your company has ceased trading and you want to explore the best strategy for winding it up, contact our team today to discuss the benefits of solvent liquidation before the financial year-end.