All Press Releases for May 06, 2022

McDonald Vague Insolvency Practitioners Notice an Increase in IRD Initiated Liquidation Appointments

Debt collection actions are gaining momentum and winding up proceedings are on the rise in NZ. There is an increase in IRD initiated winding up proceedings.

    AUCKLAND, NEW ZEALAND, May 06, 2022 /24-7PressRelease/ -- Many NZ companies have been impacted by Covid-19 and are facing insolvency. To be insolvent means one of two things:
• Debts can't be paid when they're due.
• Total debt is more than the value of all assets.

The Commissioner of Inland Revenue has increased debt recovery actions. The CIR is able to issue a statutory demand as a step necessary to advance a proceeding against a company.

McDonald Vague Insolvency Practitioners recommend for any business struggling to meet tax arrears that negotiations are entered into promptly to avoid a potential winding up proceeding.

Taxpayers are required to pay their tax in full and on time. Failure to do so leads to late payment penalties and interest. These charges compensate the Commissioner for the loss of use of the money and act as a deterrent to encourage taxpayers to pay the correct amount of tax on time.

If your company receives an IRD formal demand, doing nothing isn't an option. Inaction will limit your options and virtually guarantees insolvency. You can also be held personally liable for failing to pay PAYE.

In certain situations the Commissioner may be able to provide assistance to taxpayers if they are not able to pay on time, or if the imposition of penalties and/or interest is not appropriate. Depending on the circumstances the Commissioner may also agree to write off or remit amounts owing (so they do not need to be paid), or agree that the taxpayer enters into an instalment arrangement (so the amount is paid over time rather than immediately).

The IRD seek open communication and are more willing to consider instalment arrangements when directors have been upfront from the start.

The IRD can find directors liable for their company's tax under general insolvency law.

In the first instance the IRD will try for a settlement. If you can reach a repayment agreement, the IRD won't take the matter further.

If you're unable to reach a compromise, the IRD will issue a formal demand, followed by a statutory demand and then issue an application for putting the company into liquidation (winding up proceeding) if you don't settle the demand. If you do nothing the company will be placed into liquidation by the High Court.

Relief Options
The IRD offer relief options for companies with viable businesses and have been supportive of businesses that have shown clear impacts of Covid-19 on their business.

Financial relief can be granted when a taxpayer cannot meet their payment obligations.

The Commissioner is open to instalment arrangements towards tax arrears.

The CIR may agree to collect the amounts owing over a period of time through an instalment arrangement, or to not collect the amount owing (that is, write off the amount), or a combination of the two options (that is, write off some of the debt and enter into an instalment arrangement for the remainder).

Where an amount is considered irrecoverable, the Commissioner has the discretion to write it off.

One possibility for meeting the IRD formal demand is voluntary liquidation. This gives the director and shareholders a small element of control over liquidation proceedings. If liquidation is inevitable then the opportunity to voluntarily appoint a liquidator is usually required within 10 working days of the winding up proceeding being served so acting promptly following the statutory demand (or earlier) is advised.

If you do nothing or you can't reach a settlement, the IRD can apply for their preferred liquidator or Official Assignee and manage your affairs and liquidate your company. In this instance the Court will appoint the IRD's liquidator. As company director you have less control over the process and must cooperate with the Court appointed liquidator or Official Assignee at all times.

Deciding between involuntary and voluntary liquidation may not seem like much of a choice. Appointing a licensed insolvency practitioner that you believe understands you, your business and your industry, and who can consider your interests while satisfying the IRD's demands provides more certainty of the likely outcomes. Your liquidator can apply specialist skills to remove some of the sting from this traumatic process.

If your company is experiencing financial difficulty, download McDonald Vague's free guide for NZ Companies to discover your different options.

If the company has lost too much from the impact of Covid19 and the prospects are that the company has minimal ability to repay creditors nor has a financial source to fall back on to offer a better position than what liquidation holds, then liquidation sooner may be the better option. Continuing to trade with knowledge of insolvency is a risk for the directors.

If your company needs some advice on the restructuring options or is likely facing the prospect of liquidation, McDonald Vague is happy to advise on the process and consequences.

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McDonald Vague Licensed Insolvency Practitioners
We Help NZ Businesses In Financial Difficulty

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Peri Finnigan
McDonald Vague
New Zealand
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