Case Study: Over $650,000 in IRD Tax Debt, Two Companies Avoid Liquidation

When businesses leave outstanding tax debts unresolved for an extended period, the consequences may go beyond penalties and interest. As IRD tax debt continues to accumulate, Inland Revenue (IRD) may take further debt recovery action and, in appropriate circumstances, apply to the court to liquidate a company.

Once matters reach this stage, the concern is no longer simply how much the company owes IRD, but whether the business can continue operating and what may happen to the assets held by the company.

We recently completed a similar case involving two companies owned by the same client. Both companies were facing liquidation applications initiated by IRD due to longstanding tax debts. Ultimately, both companies avoided liquidation. One company received a partial remission of its outstanding debt, while the other resolved its remaining liabilities through a combination of a lump-sum payment and a long-term instalment arrangement.

Two Companies Facing IRD Liquidation Proceedings

Both companies had significant outstanding IRD tax debts, and the matters had already progressed to the stage where IRD had applied for their liquidation.

One of the companies also owned property, which made the situation particularly concerning for the client. Their main concern was no longer just how to repay the outstanding tax, but whether the companies could be preserved and whether their assets would be affected if liquidation proceeded.

At this stage, resolving the matter required more than reviewing the outstanding tax balances. It was also necessary to consider the companies' assets, cash flow, actual repayment capacity and whether a practical solution could still be reached.

Company One: Over $250,000 in IRD Tax Debt, Liquidation Avoided

The first company originally owed IRD more than NZ$250,000. Following discussions and negotiations, the client ultimately paid approximately NZ$190,000 to IRD, while approximately NZ$60,000 to NZ$70,000 of the outstanding liabilities was remitted.

As a result, the company avoided liquidation and was able to remain in existence. Its assets were also not subjected to disposal through liquidation proceedings. For the client, the outcome was not simply about reducing part of the outstanding tax debt. More importantly, the company and its assets were preserved.

Company Two: Over $400,000 in Tax Debt Resolved Through Payments and a Long-Term Instalment Arrangement

The second company originally owed IRD more than NZ$400,000. As the company was unable to repay the entire outstanding amount in one payment, the final arrangement involved an initial lump-sum payment of approximately NZ$180,000, followed by weekly instalments of NZ$500 over five years to settle the remaining amount payable under the arrangement.

Under the final agreement, the total amount the client was required to pay was significantly lower than the original outstanding debt, with approximately NZ$150,000 of the relevant liabilities remitted. This company also successfully avoided liquidation.

Both Companies Successfully Avoided Liquidation

Following the resolution of the case, both companies avoided liquidation. The client made combined upfront payments of approximately NZ$380,000 to IRD, with one company continuing to make weekly payments of NZ$500 over five years under the agreed arrangement.

This case demonstrates that even when a company has accumulated substantial IRD tax debt and is already facing liquidation proceedings, it may still be possible to explore alternative solutions based on its circumstances.

The appropriate approach will depend on factors such as the company's assets, cash flow, repayment capacity, the stage of legal proceedings and IRD's assessment of the proposed arrangement.

Why Should Businesses Address IRD Tax Debt Early?

When businesses first encounter difficulties paying their taxes, some owners choose to postpone dealing with the problem, hoping that cash flow will improve.

However, if outstanding tax debts remain unresolved, the situation may gradually escalate to formal debt recovery action, statutory demands, court proceedings or liquidation applications.

Once legal proceedings have commenced, the available options and time to resolve the matter may become more limited.

Therefore, if your business has accumulated significant GST, PAYE, income tax or other IRD liabilities, reviewing your tax position and exploring available solutions as early as possible can generally help manage the risks of further escalation.

Ysquared Reminder: Do Not Ignore IRD Tax Debt or Liquidation Notices

If your company has received a formal IRD debt recovery notice, statutory demand, court documents or liquidation-related correspondence, it is important not to delay taking action.

At this stage, the priority is to establish the actual amount owed, understand the current stage of proceedings and assess whether the business can propose a reasonable and achievable repayment solution.

Ysquared Chartered Accountants assists businesses with IRD audits and tax enquiries, voluntary disclosures, tax debt negotiations, penalty remission applications, overdue tax returns, IRD instalment payment arrangements and tax disputes.

The outcome of each case depends on factors including the nature of the outstanding liabilities, the company's financial position, the progress of any legal proceedings and IRD's final decisions.

This case is shared solely to illustrate our practical client experience and does not represent or guarantee that similar outcomes can be achieved in other cases.