Yes, you can sell a New Zealand business that still has debts. What you can’t do is sell the debts with it, at least not in the usual kind of sale. The bank, Inland Revenue and your suppliers still need to be paid, and anyone holding security over the business assets usually has to be paid, or agree to release that security, before a buyer will settle. The owners who sell well start this maths early, while they still have choices.
If you’re reading this because the business has become a weight you want to put down, that’s a completely reasonable place to be. Plenty of good operators reach the point where selling is the healthiest choice for them and their family. The aim of this guide is to help you do it on your terms, not the creditors’.
Asset sale or share sale: where do the debts go?
This is the first thing to understand, because it decides who ends up holding the debts.
| Asset sale | Share sale | |
|---|---|---|
| What the buyer gets | The goodwill, equipment, stock, name and usually the lease | The company itself, with everything inside it |
| What happens to the debts | They stay behind with you or your company | They go with the company to the buyer |
| How common for small businesses | The usual choice | Less common, mostly larger or tidier companies |
| What the buyer will ask for | Clear title to the assets, release of security | Warranties, indemnities and often a price holdback |
Most small business sales in New Zealand are asset sales. Buyers like them precisely because they leave the old debts behind. That’s good for the buyer, but it means the money from the sale is your main way to clear what the company owes. If the company sells its assets and then can’t pay its creditors, the directors can face some hard questions. Our guide to directors’ duties when the business is struggling covers why.
Who gets paid when the sale settles?
Think of settlement day as the moment the business’s debts line up at the door.
1. Secured lenders. If your bank or a finance company holds a general security agreement or has registered a financing statement over your equipment, stock or vehicles, the buyer’s lawyer will find it on the Personal Property Securities Register. No sensible buyer settles until those registrations are released for the assets they’re buying. In practice, the secured lender usually gets its payout straight out of the settlement funds.
2. The landlord. If the lease is being assigned, the landlord’s consent is normally needed, and landlords rarely consent while rent is in arrears. Our guide to commercial rent arrears explains how to get on top of this before it threatens the sale.
3. Inland Revenue. IRD debt doesn’t pass to an asset buyer, but it doesn’t go away either. Overdue GST and PAYE stay with your company, and the sale can create a fresh GST bill of its own (more on that below).
4. Unsecured creditors. Suppliers, subcontractors and credit cards sit at the back. Once the business is sold, the company usually has no income left to pay them except what’s left from the sale.
If the price clears all four, you’re in a good position. If it doesn’t, you need a plan for the gap before you sign, not after.
The GST trap on the sale itself
Owners focused on old debts often miss the new one the sale creates.
If you and the buyer are both GST-registered and the business is sold as a going concern, the sale can be zero-rated, meaning GST is charged at 0%. The conditions are technical and have to be met at settlement: the agreement has to record it, the buyer needs to be registered, and the business has to be handed over as a working operation. IRD’s policy guidance on zero-rating land transactions, which covers going concern sales that include land, makes the point bluntly that if the conditions aren’t satisfied at settlement, the supply “should be taxed at 15%”.
Then, when you stop trading, you’ll file a final GST return. IRD’s page on your final GST return says it can include adjustments for assets you keep, amounts you still owe creditors and money debtors owe you. Ask your accountant to estimate this figure before you agree a price, so it’s in your settlement maths from day one.
The timing mistake that sinks struggling sales
The single biggest factor in what a struggling business sells for is whether the owner is selling or being forced to sell.
A buyer who learns that IRD has issued a liquidation proceeding, or that a statutory demand is running, knows you’re short of time. They’ll lowball, ask for a long due diligence period and wait for the deadline to do their negotiating for them. Once a liquidator is appointed, the decision isn’t yours at all, and assets sold in a liquidation often fetch a fraction of what a going business is worth.
Compare that with an owner who:
- has a current arrangement with IRD, or has refinanced the tax debt;
- has talked to key suppliers and agreed how they’ll be paid (our guide on talking to creditors helps here);
- is keeping wages, rent and GST current while the business is on the market.
That owner can say no to a bad offer. That’s worth real money.
Business.govt.nz’s guidance on selling, closing or stepping away suggests that if money troubles are behind the decision, you start by working out your total debt and getting advice from an accountant or lawyer. We’d add one thing: do it before you list, not after the first offer arrives.
Already know the sale price won’t stretch far enough? Check what funding could bridge the gap so the sale can settle on time.
If the company is insolvent, be careful how you sell
If the company already can’t pay its debts as they fall due, the sale needs extra care. A liquidator appointed later can look back at transactions in the two years before liquidation and challenge any that were at undervalue. Selling the business cheaply to a relative, or to a new company you control, is exactly what they look for.
You protect yourself by:
- getting an independent valuation or a genuine market test;
- selling to an arm’s-length buyer at a fair price;
- making sure the proceeds actually go to creditors in the right order.
If you’re already at this point, read alternatives to liquidation before you sign with anyone. Selling as a going concern is often one of them.
Your personal guarantees don’t end at settlement
This catches out a lot of owners, and it’s the part that can follow you home.
If you’ve guaranteed the bank loan, the lease or a supplier account, that guarantee usually continues until the debt is paid or the creditor formally releases you. Assigning a lease to a buyer doesn’t automatically let you off it, and some leases keep the original tenant and guarantors liable if the new tenant defaults.
As part of the sale, ask for:
- written releases from the bank once its debt is paid out;
- the landlord’s agreement to release you and your guarantors on assignment;
- confirmation from any supplier you guaranteed that the account is closed and cleared.
Our guide to how directors’ personal guarantees work explains what you’ve likely signed.
A worked example: a Nelson bakery
Example only: a made-up business drawn from situations we see often.
A couple own a bakery and café in Nelson through their company. After a tough couple of years they decide to sell. A buyer offers a fair price for the goodwill, ovens and fit-out as a going concern.
Their accountant runs the numbers. The bank’s term loan, secured by a general security agreement, takes most of the proceeds. That leaves overdue GST and PAYE with IRD, two months’ rent arrears and several supplier accounts. The price won’t stretch to cover everything, and the landlord won’t consent to the lease assignment until the arrears are cleared.
- Week 1: They talk to IRD about the arrears and contact their main suppliers to explain the sale and the timeframe.
- Week 2: They enquire with a specialist lender. The owners have equity in their home, so a modest second mortgage looks workable, without needing up-to-date financials for the initial assessment.
- Week 4: The loan pays out the rent arrears and IRD. The landlord consents to the assignment and releases the owners’ guarantee.
- Settlement: The bank is paid from the sale proceeds and releases its security. The suppliers are paid the balance. The couple are left with one manageable repayment on their home, rather than a liquidation and a string of guarantee claims.
Without the bridge, the most likely outcome was a failed sale, a closed shop and the same debts with nothing left to pay them.
A checklist before you list
- List every debt, who it’s owed to and whether it’s secured. Search your own company on the PPSR so nothing surprises you.
- Ask your bank for a payout figure and what it needs to release its security.
- Check your lease for assignment terms and any arrears.
- Get your accountant to estimate the GST and tax effect of the sale, including the final GST return.
- Build a short cash flow forecast to settlement. Our 13-week cash flow guide shows how.
- Work out the gap between the likely price and what you owe, and decide how you’ll fill it.
When the sale won’t quite clear the debts
Selling a business you’ve poured years into is hard enough without worrying that the numbers won’t add up on settlement day. We help owners in exactly this spot regularly, where the buyer is ready but IRD, a landlord or a supplier stands between them and a clean handover.
Our lending partners can look at property-secured loans from $20,000 to $1m, on a first or second mortgage, with no financials needed for the initial assessment and, in some cases, funding within 24 hours of approval. That can pay out IRD and creditors so the sale settles, or carry the business until it does. If you need to tidy up several debts at once, a complete refinance or refinancing IRD debt may suit.
Finding out takes about 60 seconds, and there’s no credit check when you first enquire. Your details won’t be passed around to a crowd of lenders or sprayed across the market, so your phone won’t start ringing with strangers. A real person reads your situation, including the sale and its settlement date, and calls you to talk through what’s realistic.
Please fill the form in accurately, especially the debts, the expected sale price and any property you could offer as security, so we can line up the right option first time.