Bethany's ran up some big bills, including more than $400,000 in tax, before going into liquidation.

High overheads, over-staffing and a lack of working capital has landed a respected restaurant more than $700,000 in debt.

The owners have pointed to a previous accountant, who they say gave them bad advice.

Bethany's, on The Square in Palmerston North, was placed into liquidation in July by its owners Reuben and Lynne Leung Wai, who ran the restaurant for eight years.

Located in the Palmerston North City Council's building, Bethany's was named after the Leung Wais' daughter, who died after an eight-month battle with bone cancer.

READ MORE:

* Well-respected Palmerston North restaurant Bethany's faces financial woe

* Opinion: Closure of Palmerston North hospitality stalwarts a shame

* Palmerston North institution Cafe Express on the market

* Bella's Cafe closed after two decades in Palmerston North

According to the first liquidation report from Imran Kamal​ of Liquidation Management, Bethany's had "high overheads, was under-capitalised, over-staffed" and had "a lack of working capital".

The restaurant's two floors meant higher staff costs, and cashflow was especially low during winter.

The company's directors, the Leung Wais, said they had received "substandard advice" from a previous accountant, Kamal said in his report.

Debts began to mount, the restaurant fell behind on its tax obligations and a new accountant was unable to negotiate a payment plan with Inland Revenue.

"Based on the financials, the company has been insolvent for several years," Kamal said.

Financial figures attached to the liquidation report show Bethany's owes $777,364.

Among those owed money are Inland Revenue, $431,920, and the ANZ Bank, $288,720.

The city council is owed $20,899 in rent, although Kamal has arranged to pay all future rent while the business trades.

He said it made sense to trade through liquidation.

"The business has great potential, is in a great location and has a good customer base."

Almost all the restaurant's staff had been retained on a casual basis, with Reuben Leung Wai working as the head chef, while suppliers had allowed Bethany's to purchase goods in the meantime, Kamal said.