Why accountants give this advice
When an accountant looks at a business’s numbers and sees overdue IRD, creditors stretched past their terms, and more going out than coming in, they have to say something. Suggesting an insolvency practitioner is a responsible thing to do. It tells you, plainly, that the company may be insolvent, meaning it can’t pay its debts as they fall due, and that directors have duties to consider.
What that advice doesn’t always include is a view on funding. Accountants aren’t lenders, and many assume that if the bank has already declined, borrowing is off the table. It isn’t, necessarily.
What an insolvency practitioner will likely discuss
A licensed insolvency practitioner will usually walk you through the formal options:
- Liquidation, where a liquidator takes control, sells assets and pays creditors by priority;
- Voluntary administration, where an administrator takes control while creditors decide the company’s future;
- A Part 14 compromise, where creditors vote on a proposal to reduce or defer what they’re owed;
- sometimes, informal arrangements with creditors.
They’re experts in these processes. Our guide, liquidation vs voluntary administration vs creditor compromise, explains who’s in control and who gets paid under each.
The question to put on the table
Before any of those, ask: if the pressing debts were paid, would the business be viable?
Look at it this way. If IRD, the overdue suppliers and the expensive short-term loan disappeared tomorrow, could the business cover wages, rent, current tax and one sensible loan repayment? If the honest answer is yes, you may have a funding problem rather than a business problem.
A simple 13-week cash flow forecast, ideally prepared with your accountant, will answer that quickly.
When funding is realistic
| Your situation | What may be possible |
|---|---|
| You or a supporter own NZ property with equity | Property-secured loan from $20,000 to $1m, first or second mortgage, to clear IRD and creditors |
| No property, steady turnover, trading 6+ months | Unsecured cash-flow loan or business line of credit, weaker credit considered |
| Many creditors and enough equity | Complete refinance of everything into one loan |
| No equity, ongoing losses | Funding probably isn’t the answer; a practitioner may be |
Bring your accountant with you
The best outcomes we see come when the owner, the accountant and the lending specialist are on the same page. Your accountant knows the numbers. We know which lenders will look at a business in your situation. Together, a plan that clears the pressing debts and sets out how the loan will be repaid is much stronger than any one piece alone.
A note on directors’ duties
If your accountant has raised solvency, it’s worth understanding your duties as a director under the Companies Act, particularly the duties not to trade recklessly and not to take on obligations the company can’t meet. A lawyer can advise on your specific position. Our guide to directors’ duties when a business is struggling gives a plain-English overview.
Next step
Take a minute to check the funding route before you appoint anyone. Start an enquiry or call 03 667 4222. It’s free, and it won’t affect your credit score.