New Zealand business insolvencies set to rise


New Zealand businesses continue to be affected by supply chain disruptions, interest rate increases, labor shortages and rising costs. Bankruptcies in New Zealand will increase.

AUCKLAND, NEW ZEALAND, July 11, 2022 / — A more vigorous approach to debt collection is likely to encourage business leaders to take a proactive approach to managing IRD debts and obligations. This will lead to an increase in business bankruptcies and business write-offs. GRIP members in Australia and the UK suggest New Zealand is a year away from seeing a noticeable change in insolvency appointments. Australia expects an increase in the last quarter of this fiscal year. Keaton Pronk of McDonald Wave considers New Zealand to be six months behind Australia.

Directors of distressed companies should consider options for restructuring operations or entering into formal compromise arrangements or voluntary administration. Liquidation is also a consideration for some.

Company deregistration is the process by which a limited liability company is deregistered from the Companies Office register. Following the deletion, the company ceases to exist. There are three options for terminating New Zealand companies:
• Simplified deletion from the companies register (solvent companies)
• long-term withdrawal – a solvent or insolvent liquidation, or
• failing to file an annual return with the Companies Office (the “shortcut method”).

The third option is not recommended. Short and detailed form methods minimize risks. Failure to file an annual return does not terminate indebtedness. It also does not give the certainty that the company is at the end of its life.

Many directors and shareholders of companies facing financial difficulties are tempted to abandon the company, failing to file annual returns, resulting in the company being delisted. Failure to file an annual return is an offense under the Companies Act 1993.

The shortcut approach carries risks and the prospect of business restoration. These risks may include:
• for a solvent company, share capital and capital gains are not distributed tax-free, shareholders could be liable for tax on the distribution
• loss of tax credits;
• Loss of carried forward losses and chargeback credits
• Assets not distributed prior to write-off become state property unless the business is reinstated;
• land/property held in the name of the company cannot be transferred
• A disbarment is not a way to avoid a potential liability claim
• A delisting is not a way to avoid like 385 prohibition notices
• reinstatement by the registrar is simple if the company is a party to legal proceedings and these proceedings were initiated before the revocation
• reinstatement by the Registrar can be brought forward if the company was in liquidation or in receivership or both at the time
• The court has broad general discretion to re-enter a company on the register if it is satisfied, for any other reason, that it is just and equitable for the company to be re-entered on the register (s 329(1)(b) )).
• there is no legal deadline for the restoration to take place
• there is a 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 documents. (Failure to keep accounting records at the registered office of the Company is a misdemeanor punishable by a fine of up to $10,000 for both the company and the directors).

A company that has been re-entered in the register is deemed to have continued to exist as if it had never been struck off the register: art. 330(2). This means that all interest/penalties incurred between delisting and reinstatement are due. It also means that company records need to be updated.

Simplified liquidation or compulsory liquidation are more expensive but avoid the potential consequences of a company recovery.

The simplified deletion process is best suited to a company that has little business history and/or holds minimal assets, is subject to low business risk and no contingent liabilities.

A solvent liquidation costs more than a simplified withdrawal, but minimizes the risk of the business being reinstated through a creditor’s claim.

An insolvent liquidation involves an independent licensed insolvency practitioner who handles the liquidation of the company and the proper management of assets and distributions.

McDonald’s Wave Certified Insolvency Practitioners

Peri Finnigan
McDonald’s Wave Limited
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