Paddison got off to a flying start and was four under after four holes. He managed seven birdies in all with one dropped shot at the 14th.
Auckland professional Dominic Barson was the big mover of day two, also with a six-under 64, elevating him 22 places and getting him to within three shots of Paddison.
"I have been in this position before and played pretty poorly so it is important to not get too excited.
"I think I have just got to hole more putts; that has been my Achilles heel for the past year and a half."
New Zealand's leading amateur, Ryan Fox, who finished third in the event last year, played alongside Paddison and delivered a four under 66 to be in a share of second place.
"Gareth and Mike are our two best pros in this field. It is great seeing how the next level up plays. He has plotted his way around this course brilliantly in the first two rounds ... I am learning a lot from playing with him."
Hendry, the pre-tournament favourite, opened with a five-under 65 but never produced his best in round two. He worked on the range after his round and was bitterly disappointed with his effort.
"That was bloody awful, from tee to green I couldn't get anything going," said the 31-year-old.
The 2009 champion, who was runner up last year, has a good record at the Tauranga Golf Club and is looking to turn it around on day three.
"Hopefully it was just one of those days where I was lacking rhythm. I am going to go home and have a few beers, watch the rugby and hope it is better tomorrow."
Local favourite Jared Pender backed up his four-under 66 start with a one-under 69 in the benign morning conditions.
New Zealand Amateur Champion Mathew Perry was also among the big movers on day two.
The Waikato amateur was the only player from the NZ team to record four counting scores at the Nomura Cup in Fiji recently. He had an eventful three-under 67 (which included an eagle, five birdies and four bogeys) to get to five under.
"I am surprised by my position after 36 holes," said the 24-year-old.
"The conditions are tough and guys are struggling to score as opposed to previous years."
Meantime in the women's field Emily Perry holds a three-shot lead from New Zealand teammate Chantelle Cassidy after she shot a three-under 69 in round two.