Solvency Risk: What NZ Boards Should Ask When Failures Hit a Decade High

Creditors filed more than a thousand winding up applications against New Zealand companies in the first nine months of 2026, more than in any full year from 2017 to 2023, and Inland Revenue was behind about four in five of those advertised in September. Liquidations are running well ahead of last year, with construction and hospitality hardest hit. If your board has not had a deliberate conversation about solvency risk this year, this is the guide to start it.

None of this means every struggling company is reckless. Much of the current wave is old tax debt being called in. But it changes the conditions your board is working in, and it is exactly the setting in which directors end up explaining, years later, why they kept trading.

Why solvency risk is a board question, not a finance question

The Companies Act 1993 places duties on directors personally when a company's position weakens. In general terms you must not allow the company to trade in a way likely to create a substantial risk of serious loss to creditors, you must not agree to the company taking on an obligation unless you reasonably believe it can perform it when required, and you must bring the care, diligence and skill of a reasonable director to all of it.

Those duties are not satisfied by having a good CFO. They attach to each director. The Supreme Court's 2023 decision in the Mainzeal case made the point sharply: directors were held personally liable after the company kept taking on obligations while relying on support from its parent group that was never legally binding. Optimism, however sincere, was not a plan.

The current climate adds two pressures. Inland Revenue is pursuing overdue tax with unusual vigour, so a company that has quietly let its tax position slip can move from arrears to a winding up application faster than its board expects. And liquidators are pursuing directors. In early October the liquidators of a collapsed energy company started High Court proceedings against four former directors, alleging breaches of exactly these duties. The allegations are untested, but the pattern is familiar: liquidators examine the board papers and ask what the directors knew, and when.

The warning signs a board should see early

A solvency problem rarely arrives as a single event. It shows up first as a set of small signals that, taken separately, each look manageable:

Tax arrears or instalment arrangements with Inland Revenue, particularly ones the board learns about after they are agreed.
Creditor days stretching month on month, or key suppliers moving you to cash on delivery.
Covenant headroom shrinking on bank facilities, or a waiver requested "just this quarter".
Forecasts that keep moving right. The recovery is always two quarters away.
Reliance on support that is not written down, from a shareholder, parent company or funder.
Large new commitments (a lease, a contract, a capital project) signed while any of the above are present.

The question for your board is not whether these exist, since most companies show one or two at some point. It is whether the board sees them as a set, regularly, before management has already decided what to do about them.

What good solvency oversight looks like

Solvency is a standing item while conditions are tight. A short paper every meeting: cash runway, a rolling cash flow forecast, tax position, covenant headroom and creditor ageing. Not only at year end.
There is a named owner and a trigger. The board agrees in advance the point at which the conversation changes, for example runway under six months or a covenant breach, and what happens then.
Tax is reported as a liability, not a timing difference. Any arrangement with Inland Revenue is reported to the board when it is proposed, not after.
Support from others is documented. If continued trading depends on a shareholder or parent, the board has it in writing, with its limits, and knows what happens if it is withdrawn.
New obligations are tested against the forecast. Before signing a significant commitment the board asks, and minutes, whether the company can reasonably be expected to meet it.
The minutes record the reasoning. When the board decides to keep trading through a difficult period, the minutes say why: the evidence considered, the assumptions relied on, the advice taken, and when it will be revisited.
Advice is taken early. An insolvency or restructuring adviser engaged while there are still options is cheap. One engaged after the winding up application is not.

Common failure modes

The optimist's forecast. Each reforecast is approved on its own merits and nobody compares it with the last three.
Tax as a funding line. Unpaid tax quietly becomes working capital. It is the debt now most likely to be enforced.
Assumed support. "The shareholders will back us" is said in the meeting and never written down.
The new contract in a weak quarter. The board approves a growth commitment without asking whether the company can perform it if the downside arrives.
Silent minutes. The board did discuss solvency, carefully, but the minutes say "financial report noted", which is all a liquidator will ever see.

Questions to put to management this quarter

[ ] What is our cash runway on the base case, and on a plausible downside?
[ ] Are we current with Inland Revenue on every tax type? If not, what is the arrangement and who agreed it?
[ ] How much headroom do we have on each banking covenant, and when is the next test?
[ ] Which significant obligations are we committed to in the next twelve months, and can we meet them on the downside case?
[ ] Does any part of our plan depend on support that is not legally committed?
[ ] At what point would we seek independent insolvency or restructuring advice, and have we agreed that trigger as a board?
[ ] Would our last three sets of minutes show a reader why we believed the company could continue to trade?

The duties themselves are also under review as part of the wider Companies Act modernisation, and the settings may change. Until they do, the standard is the one above.

How Boardside helps

We built Boardside so that the signals described above are seen together and on a schedule, rather than surfacing one at a time in different reports. In the Risk Register, liquidity and solvency risk sits as its own Financial entry, rated for likelihood and impact, with an inherent and a residual score, a named owner, a review date that flags when it is overdue, and a badge showing whether the exposure sits within the risk appetite your board has set.

The triggers and follow ups your board agrees become actions in the Action tracker, each with an owner, a due date and a status, so "seek restructuring advice if runway falls under six months" is a recorded commitment with a name against it, not a remark in a meeting. And the intelligence briefing watches the environment between meetings, surfacing signals like changes in tax enforcement, sector failure rates and director liability cases as they emerge.

If your board would struggle to show, from its own records, how it watched solvency through a tight year, see what it looks like when that risk is owned, scored against your appetite, and turned into actions with names against them. Book a demo

This guide is general information for New Zealand directors and is not legal advice. Your obligations depend on the Companies Act 1993, your organisation's constitution, and any sector rules for charities, Crown entities, or financial markets participants. If your company may be approaching insolvency, take advice from a qualified insolvency practitioner or lawyer promptly.