Dave Ananth wants to see a different approach to collecting tax arrears from businesses that probably deserve to survive; de-emphasise hard penalty escalation, re-emphasise early intervention to preserve viable businesses

Company liquidations in New Zealand are rising again, and much of the public commentary has been quick to attribute the trend to Inland Revenue’s return to active enforcement.

That explanation is convenient. It is also incomplete.

What is unfolding is not simply the result of tougher enforcement. It reflects a deeper timing mismatch between when tax debt accumulated, how long it was allowed to sit, and how it is now being enforced.

Recent insolvency data confirms that pressure is elevated. There were 365 winding up applications in the first quarter of 2026, the highest first quarter in a decade. Inland Revenue Department remains a significant driver of that activity, accounting for 66 of the 90 applications filed in March 2026 alone. At the same time, 669 companies entered formal insolvency processes in Q1 2026, up from 619 in the same period last year, a rise of approximately 8 percent.

Recent enforcement action continues to surface publicly. Inland Revenue Department has, for example, applied to liquidate a multi site hospitality business in April 2026, reinforcing that these trends are current, not historical.

The numbers are not in dispute. The interpretation is.

During the COVID period and its immediate aftermath, Inland Revenue Department deliberately softened its approach. Payment arrangements were extended. Penalties were muted. Active debt enforcement was deprioritised. This was not an institutional failure. It was a conscious policy response to an extraordinary economic shock.

The issue is not that enforcement has resumed.

The issue is what accumulated in the years when it did not.

Many businesses continued operating while carrying tax arrears that were manageable only under those temporary conditions. GST and PAYE obligations were deferred. Arrears accumulated quietly. Interest continued to run. In some cases, businesses adapted. In others, they did not. When normal enforcement settings returned, those underlying weaknesses were exposed.

Enforcement did not create the fragility. It revealed it.

That distinction matters, but it does not tell the whole story.

In practice, the position is not uniform. Some businesses have had the capacity to recover but were constrained by timing, particularly where enforcement action accelerated before commercial restructuring could take effect. Others were impacted by factors entirely outside their control, including sudden contract cancellations, supply chain disruption, and geopolitical shifts affecting export markets. These are not cases of deliberate noncompliance. They are cases where commercial reality moved faster than the tax system’s ability to respond.

None of this is an argument against enforcement. Compliance with tax obligations is fundamental, and the integrity of the system depends on a level playing field. Inland Revenue Department is right to enforce. The issue is not whether enforcement should occur, but how it is applied across fundamentally different commercial circumstances.

In a number of cases I have been involved in, the underlying tax liability itself was not the primary barrier to recovery. The difficulty lay in the accumulated use of money interest and shortfall penalties, which in some instances exceeded the taxpayer’s realistic capacity to repay within any commercially viable timeframe. Payment arrangements can defer the outcome, but they do not necessarily restore viability once the surcharge component has reached that level.

A purely procedural approach to enforcement, applied uniformly, risks overlooking whether a business has a viable commercial pathway forward. The distinction between inability and unwillingness to pay is not academic. It is central to whether enforcement leads to recovery or simply accelerates liquidation.

From a revenue perspective, liquidation is not a strong outcome. Inland Revenue Department typically recovers only a fraction of what is owed. Employees lose jobs. Creditors remain unpaid. The tax base contracts. Where a business has underlying commercial viability, this is an economically inefficient result.

Yet the system tends towards liquidation because it is administratively clean. It closes files. It produces finality. Earlier intervention, by contrast, requires judgement, time, and a willingness to engage with uncertainty.

This tension sits at the centre of the current environment.

What is unfolding is structural rather than episodic. Inland Revenue Department now operates with stronger data capability, better visibility of taxpayer behaviour, and a fiscal environment that places greater emphasis on collection. That shift was inevitable. The transition, however, has been uneven.

There has been limited recalibration of penalty and interest settings to reflect the scale of debt accumulated during the enforcement pause. The current framework was designed for ordinary cycles of noncompliance, not for a prolonged period in which enforcement was deliberately softened. As a result, the application of those settings now has a disproportionate effect in certain cases, particularly for small and medium enterprises with limited working capital.

This broader pattern is consistent with wider business stress indicators, including recent data from Statistics New Zealand showing elevated business exits compared with pre pandemic levels.

If the objective is sustainable recovery and a stable tax base, this approach deserves closer scrutiny.

A system that intervenes only once arrears are entrenched is not optimised for recovery. A system that relies heavily on penalty escalation after the fact is not neutral. It influences outcomes in ways that can narrow the pathway back to compliance.

There is room for a more differentiated approach. One that distinguishes earlier between incapacity and avoidance. One that applies interest and penalties in a way that reinforces compliance without foreclosing recovery. One that recognises that preserving a viable business, where possible, often delivers a better long term revenue outcome than forcing liquidation.

The rise in liquidations should not be read as proof that the system is now working as intended. It is better understood as the result of deferred enforcement meeting accumulated fragility, without sufficient adjustment in between.

Blaming Inland Revenue Department alone misses the point. But so does assuming that stronger enforcement, in its current form, is producing optimal outcomes.

The real question is not whether enforcement has gone too far.

It is whether it is being applied with sufficient precision, and at the right point in the commercial lifecycle, to achieve the outcomes the system is meant to deliver.

^Footnotes

 ^{McDonald Vague, Insolvency by the Numbers #63: NZ Insolvency Statistics March 2026, 1 April 2026.
 New Zealand Companies Office, Insolvency Statistics, accessed 8 April 2026.
 Business Desk, “IRD applies to liquidate Turkish cafe chain businesses”, April 2026.}

Dave Ananth is a principal at Meridian Partners, specialising in IRD disputes, enforcement, and student loan matters. His background, profile and contact details are here.