As we approach the half-way mark in 2025 and with the Budget just released, it is timely to reflect on the state of the domestic economy and what this might mean for the insolvency profession. The IRD started the year with an announcement that it was taking a harder line with tax defaulters that has been reflected in the number of liquidation applications that it has made. Separately, insolvency practitioner conduct is back in the news and the courts. After what can properly be described as an elephantine like gestation period the Insolvency Practitioners Regulation Act 2019 came into force progressively through to June 2021. Four years on from its coming into force we preview two matters that we expect will be closely watched by members of the profession and regulators.
Economic chaos or not?
On the plus side the primary sector is enjoying good news with Zespri announcing $5b in global sales and the dairy sector delivering high milk solid prices. Treasury's Budget forecast also includes that although New Zealand will be buffeted by the shock from shifting global trade policies, economic growth is forecast to gather pace this year, and a recovery is being helped by interest rate cuts. Those shifting trade policies referred to by Treasury are also contributing to significant fluctuations in world equity and bond markets. The ANZ April Business Outlook, by contrast, is less optimistic, noting that its survey results on business confidence fell for the third month in a row to 37 in May. A survey of small businesses across Asia by CPA Australia noted that among New Zealand businesses business sentiment remains pessimistic. New Zealand had the lowest percentage of businesses reporting growth in 2024, a trend expected to persist in 2025 and finally, small business confidence in New Zealand’s economic outlook is low.
Two Budget related announcements that will have impact across business sectors are the changes to the pay equity and KiwiSaver regimes. The Government has announced that the savings that it makes through its controversial changes to the pay equity regime will be re-allocated to tax incentives for businesses, boosts to health and education spending, and Crown funding for new gas fields. Changes to the regime extinguish claims by workers in social services such as education, healthcare and social work. A change to the employer contribution to KiwiSaver from 3% to 4% is likely to have an impact on future pay rises and the Retirement Commissioner is predicting that up to 20% of KiwiSaver members will be worse off through the reduction in the Government contribution and means testing for entitlement to that reduced contribution.
All things considered the outlook for the rest of the year appears pessimistic, despite dropping interest rates and a recent business friendly "growth" budget. Whether this will result in more business owners seeking advice from insolvency professional remains to be seen.
Fast and furious: IRD at "full throttle" chasing tax arrears
The Government has given the IRD a multi-million-dollar funding boost for investigatory work to enable it to recover what it estimates is about $800m in unpaid tax over the next four years. Some companies in tax arrears have already felt the consequences of the IRD going "full throttle" on compliance work, with a boost in IRD liquidation applications. Directors of defaulting companies are being encouraged to sell properties to meet company tax debts. One cannot help but wonder whether a loss of preferential status for tax debts might encourage the Commissioner to take action at an early stage, when defaults first occur, with the aim of rescuing companies and allowing them to return to positive trading.
Professional conduct back in the news and courts
We report on news of a professional conduct complaint against the former employee of convicted tax fraudster and former liquidator, Imran Kamal, involving allegations that Mr Jan fronted for Kamal carrying out liquidation work despite Kamal having been refused an insolvency practitioner's licence in 2022.
Associate Judge Dale Lester's judgment in the latest round in the ongoing dispute between the liquidators of the Ormiston Rise development and its financier has just been released. The financier took the liquidators to court alleging that they had failed to act independently and impartially, and that as a result they should be removed as liquidators. Matters were raised in support of that argument, including the stacking of a creditor vote, among other alleged breaches of both the Companies Act and the RITANZ Code of Conduct. The judge noted, for example, that one of the liquidators (who was a practising inhouse lawyer) was unable to articulate a legal basis for his decision to permit certain creditors of a contractor to vote at a creditors' meeting of the principal. The liquidators had denied any impropriety and maintained that the underlying issues were contestable.
In a judgment that catalogues a range of statutory and code of conduct breaches by the liquidator and his inhouse counsel, the Court has pragmatically left the liquidators in place subject to them accepting stringent supervisory conditions, failure to accept which will result in their removal. While each side may declare partial victory, in our view the imposition of those conditions and the order that the liquidators personally pay the financier's costs of the application is an indication of the Court's assessment of the conduct of the liquidation.
We hope you enjoy the first edition of our newsletter for 2025. Please get in touch if we can provide more information.
