In our 34th Insolvency by the Numbers, we look at our data set for August 2023 and past years to see how the month has tracked and what may be coming up in the coming months.
During August we begun to see the political parties get there electioneering into gear and ramp up their campaigns with policy being released left right and centre and billboards going up across the country in every available location.
The latest OCR announcement saw no change to the rate, it did push out the timeline when we may begin to see any future reductions in the rate.
In the insolvency space there was positive news for the Ruapehu ski fields, the construction sector continues to struggle with building consent numbers dropping. The sector also represents 35%-40% of the total corporate insolvency appointments by sector. TopCatch and Pet Central retail stores along with Wishbone cafes all saw themselves entering insolvency processes joined by Epic Breweries and Beer Brothers. On the case law front the long awaited Mainzeal Supreme Court decision was released clarifying further director’s duties.
Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations
Company insolvency appointments for August 2023 combined across all insolvency types have beaten out all years back to 2019. Compared to the 2022 figures, 2023 is only up 3 appointments at this stage with August 2023 sitting at 181 for the month.
Insolvent Shareholder appointment liquidations have seen a huge jump this month up making up 104 of the total, up 34 on their long term average. Court liquidation while above the long-term average have dropped slightly from their past months highs but continue strongly on the back of steady winding up applications driven by the IRD and its recovery efforts. Of note the solvent liquidation remain below the average perhaps a signal of the current state of the economy as business find themselves struggling rather than selling up for a profit and freeing up the capital to invest elsewhere.
Finally in August total corporate insolvency figures for the year to date have caught up to and overtaken the 2019 figures 1306 to 1290. Of interest the total appointments in 2021 was 1488 and in 2022 1679, at this rate I expect we will exceed total 2021 appointments by the end of September and 2020 & 2022 by the end of October. We have a bit of work to do yet before we are likely to reach 2017/2018 levels but there is a chance it will happen before the end of the year.
While court liquidations have dropped slightly as an overall percentage, they still remain above their long team average, as do insolvent shareholder appointment liquidations which make up a large portion of the below pie, we continue to see a drop in solvent appointments however. Voluntary Administrations and Receiverships remain in line with their long-term averages.
Winding Up Applications
We are back on the climb in August after our slight drop in July. As mentioned last month while it is below June figures it is likely the result of a continued consistent increase in figures evening out compared to the usual spike we see in June/July. So, a longer sustained lift rather than a June/July spike and drop off.
In August, there has been a consistent rise in the number of winding up applications compared to past Augusts. For instance, in August 2021, there were 41 applications, with 16 being company winding up applications and 25 being IRD winding up applications. August 2022 witnessed an increase, with 69 total applications, including 14 company winding up applications and 55 IRD winding up applications. August 2023 continued this upward trend, with 83 applications, consisting of 22 company winding up applications and 61 IRD winding up applications.
Additionally, when considering the year-to-date figures, we observe a continuous increase in the cumulative total of winding up applications. From January to August, the numbers have consistently grown over the years, reflecting a persistent upward trend. This indicates persistent financial challenges faced by companies, leading to a rise in the number of winding up applications as the graph continue its upwards top right corner climb.
From the below graph we continue to see that IRD’s August 2023 winding up applications remain 3x the remainder of all creditors and have continued to grow as an overall percentage month on month since March. Total other company cumulative applications for the year total 250 while the IRD as a sole creditor is streaks ahead on 338 of the total 588 applications in the year to date. Of the 338 applications so far IRD has followed through with placing 192 of them in liquidation or 56% of the total applications so far, their long-term average is 61% ending up in liquidation. The difference is the result of the August applications still a few weeks away from being heard in court but will wash out in the long run.
Personal Insolvencies – Bankruptcy, No Asset Procedure and Debt Repayment Orders.
Personal insolvency appointments remain low and continue looking very similar to 2022 figures. This is not expected to change until the personal guarantees start to get called up by creditors in liquidations (landlords, trade creditors banks etc), and lending taken out on high interest rate loans to meet increasing cost of living catches up with people, often after the Christmas holidays and the first credit card bills come in over February. As a breakdown of appointment types bankruptcies remain above their long term average with both No Asset Procedures considerably below their long term average for the month. Debt Repayment Orders remain around their long-term average for the month.
For the year-to-date total bankruptcies are 318, these are traditionally considered the more complex of the 3 personal insolvency options with both No Asset Procedures and Debt Repayment Orders not involving any assets. As a comparison the Official Assignee has taken 167 liquidation appointments to August 2023, this makes them the largest liquidator of companies in NZ with the next closest sitting at 98 for the year to date. As the default court liquidator when no other liquidators have consented to the appointment the Official Assignee is seeing 34% of their workload coming from court liquidations largely generated by the IRD.
While there is a lot of focus on the economy and cost of living from all parties and their respective policy’s focusing on it accordingly, the numbers show that total insolvency appointments remain behind the last two elections. This is largely the result of very low personal insolvency appointments and insolvency figures being a lagging indicator for the economy as a whole.
Where to from here?
The signs continue to point to the NZ economy being in for continued pain for the foreseeable future with it likely to get worse before it gets better. The OCR is unlikely to be dropped till mid-2025, the recession continues and inflation just keeps biting.