When the then Labour-led government dropped $150 million of startup loans into Budget 2020 as part of its Covid-19 economic response, it looked like the kind of thing that would never come back to bite anyone. Cheap money for innovative firms, administered through Callaghan Innovation, at a friendly 3% over 10 years and capped at $400,000 per company. Six years later the bill is arriving, and it is not pretty.
The numbers are worse than the headline
As of 30 June 2026, OIA data obtained by the NZ Herald shows just $16.3 million of the $150 million loan book has been repaid in full, with another $50.2 million being repaid on schedule. Everything else is in trouble. Some $10.5 million across 31 companies is in arrears under reduced-payment arrangements, $48.8 million across 147 companies is in arrears or defaulted outright, and $23.2 million across 69 companies is tied up in receivership or liquidation.
That means 42% of the 456 loan recipients have defaulted, and the Herald reports the numbers are expected to worsen. Add the arrears and the insolvencies together and roughly $72 million, nearly half the original outlay, is either lost or at serious risk.
A loan was always the wrong instrument
The design was flawed from day one. Startups typically have no reliable cash flow. A 3% loan is below commercial rates, but it still creates a repayment obligation that a pre-revenue company is structurally incapable of meeting. Grants, which Callaghan also administered, are at least honest about being subsidies. Loans dress up a subsidy as a recoverable investment while carrying much of the same risk.
Commercial lenders assess repayment capacity before they lend. Venture investors take equity, aligning incentives and avoiding false repayment obligations. Callaghan’s loan programme did neither. As Kiwiblog noted in June 2026, the loans were made without the debt-management infrastructure needed to monitor and recover them. The Crown handed $150 million to an agency whose core competency was grant administration and R&D support, not credit risk.
Informal deals with no legal weight
The enforcement shift is where it gets awkward. The government announced Callaghan’s disestablishment in January 2025, defunded it in Budget 2025, and moved the loan book to MBIE. As the agency winds down, MBIE has pursued eight High Court liquidation cases with three more in the works.
The human face is Ambit AI. The now-liquidated startup borrowed the maximum $400,000, which ballooned to $467,429 with interest penalties after it defaulted. Mark Bregman, until recently Ambit AI’s chairman, told the Herald he had a verbal agreement with a Callaghan staffer to repay a lower sum. When that staffer was made redundant, MBIE took over and pursued the full amount. The good-faith deal had no legal weight once the institutional counterparty vanished. It is a neat microcosm of the whole mess: an agency with no serious recovery capability, cutting informal arrangements it could not bind its successor to, wound down while its loan book deteriorated.
The instrument that actually worked
None of this means Callaghan’s broader innovation mandate failed. The Research and Development Tax Incentive has supported over $7 billion in R&D since April 2019, issuing $1 billion in tax credits. Stats NZ’s 2024 R&D survey recorded a $1.1 billion rise in total New Zealand R&D spending between 2022 and 2024, $800 million of it from business.
The contrast is the point. The tax incentive subsidises innovation through the tax system, without a loan book to chase or a recovery problem to manage. If the goal was to stimulate R&D, the RDTI did it more efficiently and without leaving $72 million on the table.
Recovery as an afterthought
The defaults sit in a wider failure to think about failure. In May 2026, Rod McNaughton, Professor of Entrepreneurship at the University of Auckland Business School, argued New Zealand’s insolvency system is built around late-stage collapse. “Voluntary administration exists, but for many smaller firms it is too formal, too costly and used too late,” he said. “By the time the process starts, the business is often beyond recovery.” He wants a preventive restructuring regime for viable SMEs, modelled on the EU’s second-chance approach.
His wider observation lands squarely on Callaghan. “An economy that wants more innovation needs to be thinking across economic cycles and across stages in firm lifecycles, not just start-ups,” he said. “Hard times are inevitable, so we cannot afford a failure system that treats recovery as an afterthought.” The loan programme treated recovery as an afterthought from the first cheque, and a blunt High Court liquidation is now the only lever MBIE has.
The live exposure is the $48.8 million spread across 147 companies. How much of that MBIE claws back will set the final taxpayer cost. Callaghan’s skeleton staffing ends on 30 July 2026, after which MBIE owns the whole problem with no institutional memory of the original lending. The real decision facing the new Advanced Research Institute is simpler than it looks: back innovation through the tax system that works, or repeat a loan model that turned into a recovery job.
Sources
- NZ Herald: Callaghan Innovation loan losses mount as MBIE takes tougher line (2026-07-16)
- Kiwiblog: Callaghan failure (2026-06)
- Callaghan Innovation Annual Report 2024-25 (2025)
- University of Auckland: NZ’s system for dealing with business distress is too blunt (2026-05-07)
- Stats NZ: Research and development survey 2024 (2024)