There has been a lot of commentary around what the COVID-19 global pandemic is doing to countries’ economies. Some economists are predicting a global economic downturn to be the worst recession since the Great Depression and most are expecting this downturn to be worse than the GFC.
Today, 14 May 2020, New Zealand is moving from Level 3 to Level 2 and a lot of businesses are re-opening for the first time since the Level 4 lockdown came into effect seven weeks ago. In the weeks and months ahead, we will find out what effect the lockdown has had, so now would be a good time to look at the NZ insolvency figures to April 2020 and how those figures compare to the last couple of years.
Today is also budget day and Jacinda Ardern has signalled that the government will be spending to support businesses and keep people connected to their jobs.
Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations
Between 1 January 2020 and 31 March 2020, there were 421 formal insolvency appointments. Appointments were down over this period when compared to the same periods in 2019 (454 appointments) and 2018 (559 appointments).
In April 2020, there were 94 appointments, which was just over half the number of appointments in April 2019 (159) and April 2018 (160).
When the April 2020 figures are added to the previous months, insolvency appointments in the year to date are down by roughly 16%+ when compared to April 2019 and April 2018.
As at 30 April 2020, there were 652,033 companies registered on the Companies Register.
Personal Insolvencies - Bankruptcy
Many people will be feeling the financial impact of COVID-19. Many have lost their businesses and/or their jobs. The number of people on a benefit has increased, as has the number of people receiving food parcels.
The number of bankruptcies between January 2020 and March 2020 are similar to the same period in 2019 (268 and 281 respectively). The number of bankruptcies in 2018 was roughly 33% higher over this period.
The number of bankruptcies in April 2020 dropped to 50, of which 80% were debtor applications, which is a significant decrease in the number of bankruptcies when compared to March 2020 as well as April 2019 and April 2018. The decrease in creditor applications was probably because the Courts were operating at reduced capacity so creditor's applications were held off. In April 2019 and 2018, roughly 73% of the 109 bankruptcies were debtor applications.
Moving Forward - What Might Be On The Horizon?
We expect to see both company and personal insolvency numbers start to increase, especially in the second half of 2020.
The Government’s 12 week Wage Subsidy scheme is approaching its end, and many are now looking at whether they can access the next stage of support via the Small Business Cashflow (Loan) Scheme (SBCS) available from 12 May 2020 Link Here
The announcements made in today’s budget are likely to provide further targeted stimulus probably for infrastructure and tourism, as the country's balance sheet is not limitless. We will need to wait and see what those announcements and the timing of further spending are...
We hope that for the many business owners and employees returning to work today their day is productive and safe. Day by day we will all need to deal with the effects the lockdown has had on our businesses and the ability to restart, especially those who have not been trading at all, and will now need to look at how to deal with seven weeks of expenses and no income over that period.
As a firm we have been working through these situations with a range of clients for the last few weeks. There are many ways to address those issues.