Phoenix company rules: what directors can and can't do after liquidation

After a hard few years, starting fresh can look like the obvious move: close the old company, open a new one, keep the customers and carry on. New Zealand law allows people to start again. But it puts firm limits on how, especially around names and assets. Getting this wrong can turn a company problem into a personal one.

What are the phoenix company rules?

Section 386A of the Companies Act generally prevents a person who was a director of a failed company (one that went into liquidation) from being a director of, or involved in, a company with the same or a substantially similar name for five years. The aim is to stop creditors being misled into thinking they’re dealing with the same business, while the old company’s debts are left behind.

Law firms summarise the exceptions as (Norling Law, secondary):

Exception	In short
Court leave	The High Court gives permission
Successor company notice	In certain sales of the business, notice is given to creditors
Temporary period	A short period while an application to the court is made
Long-standing name	The other company used the name for 12 months before the liquidation

Each has conditions. Take legal advice before relying on any of them.

What are the penalties?

Breaching the rules is a criminal offence. Law firms and news reports describe penalties of up to five years’ imprisonment or a fine of up to $200,000, and a person in breach can be personally liable for the new company’s debts (Norling Law; RNZ).

Why is moving assets before liquidation so risky?

The name rules are only part of it. Moving assets, contracts, customers or staff from a company that can’t pay its debts into a new company can:

• breach directors’ duties to the old company and its creditors;
• be challenged by the liquidator as a transaction that should be reversed;
• expose directors to claims for the value moved; and
• in a tax context, raise asset-stripping issues (see director liability).

Licensed insolvency practitioners are bound by professional standards too: the NZ Insolvency Services Standard requires members to decline to advise an insolvent entity on how to structure its affairs so that assets become unavailable to creditors. If anyone suggests moving everything into a new company first, treat it as a warning sign.

Hoping to keep the business without the debt? Paying IRD may let you keep the same company. Talk to a funder, with no credit check to enquire.

Are the rules changing?

Possibly. The government announced Companies Act reforms in 2024, including director identification numbers to help tackle phoenixing, and extending the period for reversing related-party transactions in insolvency to four years (MBIE). As of September 2026, reporting indicated no bill had yet been introduced. Treat these as proposals and check the current position before relying on any summary.

Is there a better way to keep the business?

Often, yes: keep the same company, and deal with the debt. If the business is viable, paying IRD with a loan or agreeing an arrangement means there’s no failed company, no liquidation, no phoenix restriction and no investigation. Customers, staff and suppliers carry on dealing with the business they know. See alternatives to liquidation.

An illustrative example

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

A Rotorua building company owing IRD about $260,000 was advised to “set up a new entity, move the jobs across and let the old one go”. The directors took legal advice, which flagged the phoenix rules, director duties and the risk of the liquidator unwinding the transfer. They also had guarantees on the company’s equipment finance. Instead, they cleared the IRD debt with a property-secured loan, kept the original company and name, and completed the jobs under existing contracts.

Who counts as a director for the phoenix rules?

The restriction catches anyone who was a director of the failed company at any point in the year leading up to its liquidation. It also reaches people who are “involved” in the new company in other ways, such as managing it or being concerned in its promotion or formation, not just those formally listed as directors. Putting a spouse or relative on the register while you run things doesn’t avoid the rules, and can create further problems. If you’re unsure whether you’re caught, ask a lawyer before you act.

What about selling the business properly?

The successor company exception exists because there are legitimate ways to sell a struggling business, including to people connected to it. The key ingredients are a genuine sale at a proper price, the right notices to creditors, and advice from a lawyer or licensed insolvency practitioner who follows the process carefully. A sale that’s done properly can be better for creditors than a liquidation sale. A transfer that’s done quietly, cheaply or in a hurry is the opposite.

What should you do if you’ve already set up a new company?

Talk to a lawyer straight away, before the old company goes into liquidation if possible. Depending on what’s been moved and how, there may be steps that reduce your risk, such as paying proper value, reversing a transfer or applying to the court. Waiting for a liquidator to find it usually makes things harder. And if the old company’s business is still viable, look again at whether clearing its IRD debt would make the whole restructure unnecessary.

Keep the company you built

If you’re thinking about closing your company and starting again because of IRD debt, talk to us first. Asking doesn’t involve a credit check, your details aren’t shared with other lenders, and a real person will tell you honestly whether paying IRD could let you keep the business as it is. Please be accurate about the debt, assets and any guarantees.