It comes as no surprise that in the current climate companies are feeling the financial pressures associated with the economic downturn.

Centrix's March Credit Indicator Report says that liquidations were up 37% over the past year and the Companies Office reports that 597 companies were placed into liquidation in the period January to March 2025 alone.  

Businesses in the construction sector are being hit particularly hard, with a notable increase in liquidations in recent years. Several factors have contributed to this trend, including rising material costs and projects being put on hold following the change in government.  

In this article, Jessica Hanning and Chloe Jolliffe discuss some steps you can take to protect your construction business and what to do if you are struggling with debt.

Liquidations and the current state in New Zealand

‍Company liquidations: 2020-2025 YTD

Source: Companies Office

‍

In September 2024, Centrix reported that:

• In the previous 12 months 546 construction companies had been liquidated;
• Construction companies represented 12% of all registered companies across NZ, but 26% of liquidations across all sectors;
• Non-residential construction firms were experiencing a 78% increase in liquidations from 2023

More recent reporting from Centrix suggests that the hard times continue for construction companies, with 31% of insolvencies in February 2025 being attributed to the construction sector. In addition, there has been a 35% increase in construction company credit defaults as of March 2025.

What can you do to protect your construction business?

Know your rights under the Construction Contracts Act 2002 (CCA)

The CCA has some useful tools which can assist you to ensure:

• Timely payments;
• Security of retentions;
• A cost-effective process for resolving disputes under construction contracts.

However, the CCA can also trip you up if you are not aware of your obligations, particularly when it comes to responding to payment claims and holding retention money.

Timely payments

The progress payment provisions in the CCA are a useful tool for contractors wanting to ensure they get paid on time.

Contractors or subcontractors should make sure that any payment claims (i.e. invoices) are compliant with the construction contract requirements and the provisions of the CCA.

If the payer fails to respond to a payment claim with a valid payment schedule on time, or fails to pay any scheduled amount on time, the amount claimed (or scheduled in the latter case) becomes a debt due and owing which can be quickly enforced.

In the interim, the payee will not be able to raise a dispute about the amount claimed. It also gives the unpaid party the right to suspend works until payment is received.

On the flipside, if you are the party responsible for making payments, it is important that you respond to every payment claim with a payment schedule that is served on time and complies with the CCA requirements. Otherwise, you risk having to make payment of a claimed amount, even though you may have valid reasons to dispute the amount claimed.

Security of retentions

Recent changes to the retention provisions in the CCA provide greater protection for parties having amounts retained under commercial construction contracts. In particular:

• Retention money must be held on trust in a separate bank account;
• The party holding the retention money must:
  • keep proper records which are available to inspect at all reasonable times;
  • report at least three monthly on the retention money being held (including providing details of the bank account);
• Failure to hold retentions in accordance with the CCA and failing to keep proper records is an offence attracting significant fines.

If you are the party who has retentions withheld from your payments, you should make sure that you are being regularly updated on the status of your retentions and if you have concerns about the security of your retentions, ask to inspect the records.

If you are the party holding retentions  , it is important to ensure that you are complying with your CCA obligations to avoid potential penalties.

Dispute resolution – CCA adjudications

It is not uncommon for disputes to arise under construction contracts, particularly in respect of entitlement to payment for variations. However, if claims remain unresolved for a long period of time this can impact cashflow. Accordingly, it's important to get them resolved as quickly and efficiently as possible.  

If you are having trouble resolving a dispute under your construction contract, adjudication under the CCA is a relatively informal, quick and lower cost way to resolve a dispute compared to more formal arbitration or court processes, and can be a useful tool to unlock payment of disputed claims.

What to do if your business is in trouble?

IRD

If you are behind on your tax payments owing to Inland Revenue Department (IRD) it is important to take timely action. Ignoring notices from the IRD may risk your company being put into liquidation. In the first instance we recommend you contact the IRD to organise a payment plan as soon as possible.

It is important to note:

• Late penalties and interest will accrue on core tax debt. It is important to speak with IRD as soon as possible to mitigate this.
• Failure to pay certain types of tax, such as PAYE, is a criminal offence that may be pursued by the IRD.
• IRD is taking an active stance in the collection of tax debt. Liquidation applications by the IRD have increased significantly, with the IRD being the most active creditor in liquidation applications this year to date. This is expected to continue as the IRD keeps the pressure on businesses with arrears.

Debt collection

If someone owes you money and there's no dispute about the debt, you can take legal action to recover amounts owed to you. Your options depend on whether the debtor is an individual or a business. For individuals, you can file legal proceedings in Court and get a judgment. For corporate entities or businesses, you can issue a statutory demand and start liquidation proceedings.

The benefit of filing legal proceedings is that you can enforce the judgment if you win. This can include:

• Obtaining an attachment to wages to have your debt paid off over time;
• Obtaining a charge against any real property, which could lead to a sale to recover the debt;
• Seeking an order for bankruptcy of the debtor.

Struggling to pay your debts

If your company is struggling in the current economy, it's important that you seek legal advice around your obligations as a director of a company. There are a number of directors duties included in the Companies Act 1993 impose a personal responsibility on you as a director, particularly:

• the duty to act in good faith and in the best interests of the company and the duty to ensure that the company does not incur obligations it cannot fulfil; and
• as a director you must not agree to the business of the company being carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors; or cause or allow the business of the company to be carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors.

The important message is that with good advice, both legal and accounting, you will be able to best assess what the best outcome for your company is.

After further advice?

If you need help pursuing a claim or a disputed debt, or further advice on CCA rights and obligations, talk to Jessica Hanning.

If you need insolvency or debt recovery advice, talk to Chloe Jolliffe.‍