Personal guarantees and overdrawn current accounts: what liquidation leaves behind

The pitch for liquidation often goes something like this: the company owes IRD, the company is wound up, the debt disappears. What’s left out is everything the company’s owners still owe after the company is gone. For many small business owners, the two biggest items are personal guarantees and an overdrawn current account.

What happens to personal guarantees?

Most small business owners have signed at least one personal guarantee: for a bank facility, an equipment lease, a vehicle loan, a premises lease or a trade account. A guarantee is a promise to pay if the company doesn’t.

Liquidation doesn’t cancel those promises. The Insolvency and Trustee Service says that when a company enters liquidation and can’t pay, “the guarantor will have to repay the creditor”, and personal insolvency may follow (insolvency.govt.nz). In fact, liquidation is often the trigger for guarantees to be called.

IRD doesn’t usually hold personal guarantees for tax. But a company that owes IRD often owes guaranteed creditors too. Liquidating to escape IRD can bring those guarantees straight to your door.

What is an overdrawn current account?

The shareholder current account tracks money flowing between a company and its shareholders. When shareholders take out more, through drawings, personal expenses paid by the company or other payments, than they’ve put in or been paid as salary or dividends, the account is overdrawn. That overdrawn amount is effectively a loan from the company to the shareholder.

Law firms explain that in a liquidation, those drawings are treated as a debt owed to the company, payable on demand, and that director pay that wasn’t properly approved can also be treated as a loan (Waterstone, secondary).

Will a liquidator really pursue it?

A liquidator’s job includes checking whether directors or shareholders owe the company money (insolvency.govt.nz). Money recovered from current accounts can pay the liquidator’s fees and then go to creditors, including IRD. In many small company liquidations, the current account is one of the most significant assets available.

So a director who owes the company $80,000 on their current account may find that liquidation doesn’t remove an $80,000 problem. It changes who’s asking for it.

What changed in 2026?

The Taxation (Budget Measures) Act 2026 added a rule for companies removed from the register. Where a shareholder, director or close relative still owes money to the company six months after removal, they’re treated as discharged from the remaining payments, which can turn the outstanding balance into taxable income. It applies to companies removed from the register on or after 4 December 2025 (IRD Tax Policy commentary).

In plain terms: walking away from an overdrawn current account by letting a company disappear is now likely to create a personal tax bill. Ask your accountant how it applies to you.

Owe the company on your current account, and the company owes IRD? A plan that keeps the company trading may be far cheaper. Talk to us. No credit check to enquire.

How do these items change the liquidation decision?

Item	If the company keeps trading	If the company is liquidated
Personal guarantees	Stay dormant while the company pays	Can be called immediately
Overdrawn current account	Can be repaid over time, or cleared through salary or dividends with advice	Can be demanded by the liquidator
2026 shareholder loan rule	Not triggered	Can create taxable income after removal
IRD debt	Paid through funding or an arrangement	Mostly written off, but see above

What can you do instead?

If the business is viable, keeping it alive lets you deal with guarantees and the current account on your own timetable. Options include:

• A loan to pay IRD, so enforcement stops and the company keeps trading. Property-secured loans run from $20,000 to $5,000,000. See property-secured tax debt loans.
• A plan to reduce the current account, worked out with your accountant.
• Renegotiating guaranteed facilities while the company is still trading and able to talk.

If the business isn’t viable, take legal and accounting advice about your guarantees and current account before any appointment. Our page on director liability explains the other routes to personal exposure.

An illustrative example

Illustrative only. Not a real client and not an offer.

Two directors of a Tauranga landscaping company owing IRD about $140,000 were considering liquidation. Their accountant showed them that their current accounts were overdrawn by a combined $110,000 and that both had guaranteed the equipment finance. Liquidation would have exposed them to both. Instead, a property-secured loan cleared IRD, the company kept trading, and the accountant set up a two-year plan to bring the current accounts back to zero through properly declared salaries.

How do you find out where you stand?

Ask your accountant for three things: the current balance of each shareholder’s current account, a list of every personal guarantee given by directors (with the creditor and the amount owing), and the company’s latest balance sheet. Many owners have forgotten guarantees signed years ago on a lease or a supplier account. Put the figures next to your myIR balance and you’ll see the full picture of what liquidation would and wouldn’t change. Our guide on director personal liability and the page on what liquidation means go into the wider process.

Know what you’d still owe

If you’re weighing up liquidation and haven’t looked closely at guarantees and your current account, talk to us first. There’s no credit check to ask, your details aren’t sent to other lenders, and a real person will help you compare the options honestly. Accurate figures for the IRD debt, guarantees and current account let us tell you quickly whether funding is the better path.