Published by The New Zealand Initiative (Wellington), 2 December 2025 (PDF)
New Zealand loses hundreds of millions of dollars in tax revenue each year because directors can walk away from failing companies without consequence. This research note proposes a German-inspired fix.
Responsibility Before Ruin: A Pre-emptive Fix for NZ’s Phoenix Problem examines why New Zealand’s corporate tax collection system consistently fails. When companies collapse owing GST and PAYE, directors can simply abandon them. The company is struck off the register, no investigation occurs, and the tax debt is written off.
The problem is not that the law absolves directors. Liability rules exist. The problem is that enforcing them costs more than the debt is worth. In no-asset cases, creditors must fund restoration and liquidation before any claim can begin. Few bother.
The Initiative’s Executive Director Dr Oliver Hartwich said this enforcement gap enables persistent abuse.
“Directors of failing companies use GST and PAYE as interest-free working capital. These are funds collected from employees and customers on behalf of the Crown. When the company finally collapses, the taxpayer bears the loss while the director starts again with a clean slate.”
The note contrasts New Zealand’s reactive system with approaches in Australia and Germany. Australia’s Director Penalty Notice regime is effective but widely seen as draconian. Germany offers a more balanced model: directors must file for insolvency within weeks of distress or face personal liability. Those who act responsibly are protected.
“The German system does not punish business failure,” Dr Hartwich said. “It punishes the failure to manage that failure responsibly. There is a safe harbour for honest directors who follow the rules.”
The note proposes adapting German principles for New Zealand. A statutory duty would be triggered when GST or PAYE goes unpaid. Directors would have a defined period – 30, 60 or 90 days – to remedy the default or place the company into formal insolvency. Those who comply would be protected. Those who do nothing would become personally liable.
“This shifts the burden from creditors chasing bad debts to directors acting before debts become uncollectable. It is a fundamental change in philosophy – from reactive enforcement to proactive accountability.”
