In times of rising insolvency and the financial despair that it can cause for those involved, it is important to understand why insolvency laws are important for an economy and its financial system. Firstly, insolvency laws underpin the ability to enforce payment where someone owes you money. Without that, you could only rely on the goodwill of someone to repay you. Secondly, it is a mechanism for recycling capital back into the economy. When a business can no longer meet its obligations, capital often becomes “stuck” in assets that are under-utilised or tied up in a structure that is no longer viable. Effective insolvency processes help unlock that capital by enabling assets to be realised or reallocated, losses to be recognised, and viable parts of a business to be restructured or sold. In doing so, insolvency supports recycling of the funds tied up in the insolvent business into more productive uses.
BDO’s Business Restructuring team has seen a rapid rise in insolvency and restructuring work over the past two years, often involving difficult decisions for owners, directors, employees, suppliers and customers.
Rees Logan, BDO National Business Restructuring Leader, anticipates another 18 months to two years of peak activity in the pipeline, but he remains hopeful of a wider economic recovery for New Zealand coming much sooner. This is due to the typical lag between the start of an economic downturn and peak insolvency activity.
“In contrast to the GFC, the recent spike in liquidations has lagged and been more drawn out, likely due to Government stimulus programmes during COVID-19 including the relaxing of IRD enforcement. In some cases, this has seen businesses, whose model has fundamentally become unsustainable, delay the inevitable. Meanwhile, businesses that can ride out these challenging times will emerge more agile and resilient and will be able to take advantage of improving economic conditions.”
He continues: “With a big driver of our economy being consumer sentiment, we know that businesses were hoping the recent OCR cuts would improve consumer confidence and drive an increase in discretionary spend. Unfortunately, while the cuts have helped a bit, we haven’t seen the accompanying bounce back in property prices.”
The upside, Rees explains, is that the extended period of heightened insolvency and restructuring activity evident across the New Zealand economy is likely to leave us with more resilient economic foundations.
Outlook for 2026
Resilience will be a defining theme for businesses in the year ahead. Rees notes that uncertainty is now a fixed feature of the economic, political and geopolitical landscape, requiring leaders to stay agile, stress-test assumptions and plan for multiple scenarios.“The year ahead is shaping up as a period where resilience will be tested from multiple angles. Consumer demand remains constrained by higher uncertainty, subdued confidence, and inflationary conditions keeping cost pressures elevated. We’re also seeing continued IRD attention on overdue employer and GST liabilities, and employers will need to factor in the step-up in KiwiSaver contributions when forecasting labour costs and working capital.”
The upcoming General Election adds a further layer of uncertainty for business leaders. From an insolvency perspective, Rees thinks that revenue collection will likely continue to be the primary focus.
“Budget 2025 signalled a tougher collection environment, with the Government providing IRD an additional $35 million per year to collect additional tax debt. In practice, this is likely to mean faster follow-ups on overdue tax, less tolerance for long arrears, and greater importance placed on early engagement where payment plans are needed. Most political parties are aware that spending more on collection significantly increases tax collection. The IRD estimates that $8 can be returned for every additional $1 spent on collection. With tax debt arrears having more than doubled to over $9 billion in the last five years, political focus on tax arrears is likely to increase”
Rees continues: “A large portion of this overdue debt accumulated during COVID-19, when some businesses delayed tax payments to keep operating. While that can reduce short-term pressure, it doesn’t remove the underlying issue. The risk is that hands-on owners can be so focused on day-to-day trading that they only seek advice when options have narrowed. Earlier engagement typically preserves more pathways commercially, and for the people affected.”
Signals and considerations for businesses navigating uncertainty
Rees suggests the following considerations may help leaders build business resilience for the road ahead.Take action early, recognise the warning signs.
- Regular late payment to suppliers and/or IRD
- Wage timing pressure and growing holiday pay balances
- Overdraft limits reached and interest costs rising
- Debtor days increasing (cash taking longer to come in)
- Ongoing losses despite cost reductions
- Loss of key staff
- Loss of an essential customer or supplier
“As a general rule, decreasing revenue and difficulties with cash flow should be the first signs that you may be reaching a point where an external perspective can help clarify your options.”
Where tax debt is building, get clear on the numbers and what repayment could realistically look like.
“A number of companies enter into payment arrangements without doing a detailed assessment as to whether or not they can afford to make those payments. Agreeing realistic payment arrangements is essential to them being successful and not adding more pressure on the business.”
Look beyond the headlines when interpreting insolvency numbers
2025 saw the highest number of business liquidations since 2010, but its important to note that this is still only a small percentage of the overall number of businesses operating in New Zealand. The construction industry was the most impacted by liquidations last year, with 751 firms liquidated, but this is less than 1% of the total number of businesses in this sector.“Insolvency represents just a small part of the overall economic activity despite its coverage in the media. Most businesses can stabilise through difficult periods - particularly when options are explored early.”
Business owners and directors should also keep a close eye on the regulatory environment given the potential personal liability directors can be exposed to if they breach their duties. With corporate insolvencies at their highest level in 15 years, the Law Commission in 2025 announced a comprehensive review of company directors’ duties, with a focus on liability settings in insolvency.
“This review is very timely, as we’re seeing that some small and medium business owners aren’t sufficiently aware of their obligations when trading through financial distress. We hope the review will recommend a framework that encourages and protects directors when they take early and proactive advice, such as with Australia’s safe harbour legislation.”
Public consultation is scheduled for 2026, with a report due in 2027, marking the first complete review of this area since the Companies Act 1993 was enacted.
The road ahead for businesses
“When we start to see businesses across industries reporting profits again - not just holding revenue steady - alongside improving cash conversion, that’s when we know the cycle is turning. Businesses who addressed their issues early, are already starting to show these signs.”
The next BDO Business Performance Index will be released in May 2026, which should give us a good snapshot of the big issues facing business leaders now, and over the coming six-month period.
Read the latest report here and find practical tips for navigating the most commonly raised concerns and challenges faced by business leaders in New Zealand.
How BDO can help
BDO’s Business Restructuring team is now the largest among New Zealand’s accounting and professional services firms. If your business is facing uncertainty, we can work alongside you to help you get clear on your position, understand the options available, and plan next steps in a way that considers both commercial realities and the people affected.Reach out to the team today.
