Liquidation Help

Liquidation is one of those words that business owners often hear in the news, but do not always understand until it becomes a real issue. A company goes into liquidation when it can no longer continue in its current form and a formal process is needed to bring the company to an end.

In simple terms, liquidation is about collecting the company’s assets, selling or realising those assets, and using the available funds to pay creditors in the order required by law. It is not simply a matter of closing the doors and walking away. Once liquidation starts, a liquidator takes control of the company and manages the process on behalf of creditors and other interested parties.

For company directors, liquidation can feel stressful and confronting. For creditors, it can be frustrating because it may mean the debt they are owed will not be paid in full. The purpose of the process is to deal with the company’s financial position in an orderly way, maximise returns where possible, and make sure creditor claims are considered fairly.

How liquidation usually starts?

A common starting point is a statutory demand. This is a formal demand issued by a creditor when a company owes a debt that is due and unpaid. Under section 289 of the Companies Act 1993, the demand must be in writing, relate to a debt that is due, meet the prescribed minimum amount, and be served on the company.

Once a statutory demand is served, the company generally has 15 working days to respond. The company may pay the debt, reach a compromise or arrangement with the creditor, or provide acceptable security for the debt. If the company does not respond properly within the required time, this can become evidence that the company is unable to pay its debts.

At that point, a creditor may apply to the court to have a liquidator appointed. Liquidation can also begin in other ways, including by shareholder appointment or by the court, depending on the circumstances. The key point is that timing matters. If a company receives a statutory demand, it should not ignore it. Early advice can make a significant difference to the options available.

Who can apply for liquidation?

An application to the court can be made by several parties, including the company itself, shareholders, a director, a creditor, an administrator, the Registrar, the Reserve Bank of New Zealand, or the Financial Markets Authority.

In practice, many liquidation applications are made by creditors who have not been paid. Inland Revenue may also initiate liquidation where there is unpaid tax debt, repeated failure to file returns, ignored communication, or failure to comply with an agreed payment arrangement.

What does a liquidator do?

Once appointed, the liquidator takes control of the company’s assets and affairs. Their role is to protect the company’s property, identify and realise assets, consider creditor claims, investigate what happened, and distribute any available funds in accordance with the law.

A liquidator may sell company assets, recover company property, review transactions, set aside certain voidable or insolvent transactions, examine directors and officers, and take or defend legal proceedings where necessary. They may also continue trading for a limited purpose if that is necessary to complete the liquidation properly.

A liquidator is expected to be independent, competent, impartial, and to act with integrity. New Zealand now has a formal licensing regime for insolvency practitioners, so liquidators are subject to regulatory requirements and oversight.

Who gets paid first?

Not all creditors are treated in the same way. The order of payment depends on the type of claim and the rights attached to it.

Generally, secured creditors are dealt with first because they have security over company property. After that, the costs of administering the liquidation are paid. Other preferential claims are then dealt with under Schedule 7 of the Companies Act 1993. Unsecured creditors usually rank after preferential claims. Shareholders and other entitled persons are only considered after creditor claims have been dealt with, and in many insolvent liquidations there may be nothing left for shareholders.

This ranking system is one reason liquidation can be difficult for unsecured creditors. Even where a company owes money, there may not be enough assets available to pay everyone in full.

IRD-initiated liquidation

IRD-initiated liquidation is usually connected to unpaid tax debt or ongoing non-compliance. This may include unpaid GST, PAYE, income tax, unfiled returns, ignored notices, or a failed payment arrangement.

Tax debt should be taken seriously because it can grow quickly through penalties and interest. Some tax debts may also have preferential status in liquidation. In certain circumstances, Inland Revenue may have additional recovery options, including deduction notices, and directors may face personal exposure under specific tax rules.

The practical message is simple: if the company is behind with tax, returns, or payment arrangements, do not wait until the matter reaches liquidation stage. There may still be options available, including communicating with IRD, preparing overdue returns, proposing a payment arrangement, or reviewing whether relief is available.

Why early advice matters?

Liquidation is a formal legal process, but many problems start much earlier. Cashflow pressure, unpaid tax, overdue supplier debts, unfiled returns, and poor financial records can all build up over time.

In 2025, company liquidations reached a 15-year high with nearly 3,000 cases—a 14% increase compared to 2024. While the Inland Revenue Department (IRD) typically initiates 30% to 40% of all liquidation applications, this spiked to 77% in January 2025 alone. Historically, roughly 70% of IRD-filed applications successfully lead to a court-ordered liquidation.

The sooner a business seeks advice, the more options it may have. Sometimes the best option may be to negotiate, restructure, enter a payment arrangement, improve reporting, or deal with overdue tax matters before a creditor takes formal action. In other cases, liquidation may be unavoidable, but even then, proper advice can help directors understand their duties and manage the process more carefully.

If your company has received a statutory demand, has unpaid tax debt, or is under pressure from creditors, it is important to act promptly. Speaking to an accountant or insolvency professional early can help you understand the numbers, the risks, and the practical steps available before the situation escalates.

This article provides general information only and should not be treated as legal advice. Every company’s position is different, and professional advice should be obtained before making decisions about liquidation, creditor action, or tax debt.

Successful Cases

Below are some examples of situations we have assisted with. Client names have been changed for privacy.

Transport company

Mary operated a trucking business that had accumulated significant tax debt. Inland Revenue had reached the stage where it was seeking a financial relief application and, if the matter remained unresolved, legal recovery action could follow.

We worked carefully through both the business and personal financial position, prepared the required financial information, and assisted with communications with Inland Revenue. We found many problems in the business and they were never addressed before. We found the operational efficiencies were needed for them to stay afloat. 

We worked dilgiently with them to imporve their business, to avolid liquidation. After several months of backwards and forward, the client received remission of certain amounts and an arrangement was put in place for part of the remaining tax debt.

For Mary, this provided significant relief and allowed the situation to be managed without the immediate pressure of further enforcement action.

Courier company-family business

Max operated a couruier van that had been struggling to keep up with its tax obligations. Over time, the outstanding tax debt increased and placed considerable financial pressure on both the business and the individual.

He later moved overseas in search of better opportunities, but the New Zealand tax obligations still needed to be resolved. We kept working to resolve the matter, and communicated while he was in overaes location. Lot of efforts were done in managing the communication betweeen different time zones.  We had to argue his case of sustainable payment plan and affordability issues. All the efforts were being done to avoid his bankruptcy.

We continued working with the client to finalise the outstanding business accounts and tax returns, establish the correct tax position, and address both the business and personal tax debt with Inland Revenue.

This allowed the client to work towards resolving her New Zealand tax affairs even after relocating overseas.

Food and Catering Business

Hanna operated a food and catering business that had accumulated substantial tax debt. Inland Revenue was beginning to consider legal recovery action.

Before the matter progressed further, we focused on getting the client's tax affairs up to date. This included completing outstanding compliance work, reviewing cashflow difficulties, and presenting a clear picture of the client's financial circumstances to Inland Revenue. We found staffting issues and food cost were the main reasons. 

We worked with her to impove her business. The resulting tax relief provided significant breathing room for the client. We managed to avolid liquidation.

More importantly, the business was able to continue operating and is now in a much stronger position.

Individual GST and Tax Dispute

Alexa had previously been GST registered, but her GST registration was later cancelled. Her tax position also involved a Notice of Proposed Adjustment (NOPA), and the matter remained unresolved for more than two years while the relevant returns and tax issues were worked through.

Once all outstanding returns had been processed and the tax position was established, we were able to progress a financial relief application with Inland Revenue.

The eventual outcome provided substantial relief for the client and helped bring a long-running tax matter closer to resolution. Alexa has since moved into employment and has been able to move forward without the same level of tax pressure. This case spanned over several years but our fixed fee model provided significant peace of mind to her. After years of following up we managed to fix the tax returns, which were wrong to start with, and once this was completed, we negotiated a payment plan this was a win-win situation.