KEY POINTS:
The Inland Revenue Department is the creditor that pushes businesses under in around 60 per cent of cases when a company is liquidated by the courts.
And as economic hard times bite, the taxman is urging businesses to come forward as soon as they find themselves in difficulties.
The IRD was the petitioning creditor in 602 liquidations in the year to June 30, meaning it was responsible for liquidating about one in five of the 2711 companies wound up in the period.
But an analysis of notifications in the New Zealand Gazette by liquidator Damien Grant, of Auckland firm Waterstone Insolvency, shows that 62 per cent of liquidations in the year were voluntary.
In the remaining 38 per cent of cases, a creditor petitioned the court to liquidate the company in an effort to get back what was owed. Going by the IRD's own numbers, that means the department was behind approximately 60 per cent of involuntary liquidations.
With company failures on the rise and no end in sight to the economic downturn, it is unlikely that proportion will shrink.
The online Bob Dey Property Report, which lists goings-on in the Auckland commercial courts, recorded 69 court liquidations, applications for liquidations, and hearings last week.
In 40 cases the IRD was the applicant.
Grant said that when businesses got into trouble, typically the first creditor they failed to pay was the tax department.
"If you don't pay your wholesaler, or staff, or landlord, then the consequences of that hit very fast.
"The IRD doesn't do anything. They don't ring, they can't withhold supply."
Businesses sometimes got through a temporary slump by putting off the tax bill, paying other creditors first, and catching up later. That was a dangerous strategy, especially in a downturn, he said, pointing out that failing to pay your tax could in some circumstances be a criminal offence.
However it could take several months for the IRD to catch up with a company, and 12 to 18 months before it liquidated it.
Martin Scott, group manager assurance for the IRD, encouraged businesses to get in touch if they knew they would have trouble paying because there were things the department could do to help.
For example, if they made an arrangement to pay in instalments, the 2 per cent monthly penalty fee stopped.
"Really, the sooner you talk to us, the more you can be saving yourself in penalties.
"In some cases if we've got the payment out of them, and we've got an ongoing instalment arrangement, we may even be able to write off some of the tax."
Scott said it could be a while before action was taken because the IRD prioritised its resources and dealt with the worst cases first.
He said a company might not face liquidation for some time because the department worked with it. "We may have given them three or four chances to get their affairs sorted out."
The possibility that the Government could step in to cut business more slack because of the serious economic situation appears to have been ruled out, with a spokesperson for Revenue Minister Peter Dunne saying yesterday that the issue of forced liquidations was entirely a matter for the IRD Commissioner.
It was an area in which the IRD already had lots of flexibility, the spokesperson said.
WOUND UP
* IRD was the petitioning creditor in 602 liquidations in the year to June 30.
* This is one of five of the total 2711 companies wound up.
* However, most of these were voluntary and IRD figures show they are behind 60 per cent of involuntary liquidations.
