Insolvency by the Numbers Review: 2020 Insolvency Stats Greatest Hits

With one month now under our belts into 2021 it is timely to have a look back on 2020 and how the year played out when lined up to past years so we can gauge the full affect of COVID-19. January 2021 figures will be published in a separate article when they are compiled over the next few days.

I’m not sure that we need to do a full recap of the major events of 2020, the notable ones were COVID-19 lockdown #1, COVID-19 lockdown #2 for Auckland then an election.

In any normal year with two economic lockdowns for an extended period you would expect there to be an upswing in the insolvency cases for an economy. This was not to be. While the average Joe and Jane off the street were sitting at home working and getting updates via mainstream media, they expected the insolvency industry was going gangbusters during the 2020 year, this was however far from the case.

The election had a similar effect to what it normally does every 3 years, the economy and in particular new insolvency appoints move into a wait and see holding pattern.

Let’s look at some pretty graphs and see how the numbers fell over the last 12 months to give us some context.

As you can see corporate insolvency appointments started off normally in the first quarter, took a large drop at the time of the first lock down and struggled to recover for the rest of the year coming in under 2018 & 2019 levels in almost every month. 1,611 total appointments compared to 1,960 in 2019 and 2,168 in 2018.

Bankruptcy adjudications followed a similar pattern to corporate insolvency trends and across the board figures were down on the previous two years. 908 total bankruptcies compared to 1,220 in 2019 and 1,481 in 2018.

The last graph we will take a look at is the Winding Up Applications. You will note a strong start to the year with drops around both lockdowns as the courts could not open to process the applications. This was followed by a complete drop off in IRD applications from August to November also the time of the election and the new governments first 100 days.

What are the reasons behind the economic phenomenon?

We have a government that has injected massive amounts of cash into our economy to keep it propped up in the short term while we try deal with lockdowns and to support several industries and the job market.

This influx of cash has kept unemployment figures under the 6% mark, but the negative effects on the economy are beginning to creep through in other measures with the underutilisation rate slowly creeping up to 13.2% and the number of people receiving the main benefit at 12.4%.

While these figures would have been higher without the stimulus packages used by the government, households have increased both their savings and spending on big ticket items that would normally be spaced out over a 1 – 5-year period. With less overseas travel and house prices increasing across the country, homeowners are spending their paper gains on all manner of big-ticket items.

Low interest rates have made access to funds easier for individuals, along with the mortgage deferral scheme pushing out repayments into the future.

What do we have to look forward to in 2021?

  1. Anyone who has been into a retail shop over January or dealing with the construction sector will know that the shelves are looking a touch empty and sourcing materials has become increasingly difficult as pre-Christmas stock remains sitting on boats in the various harbours across the country and overseas. We may see a gut of Christmas stock flowing into the market along with the previous seasons stock being discounted to assist with cashflow.
  2. The lost summer of tourism. While domestic tourism may have carried us through the slower winter months, we do not have the population or spending power to make up for our summer influx of tourists along with the lost business opportunities from the Americas Cup. This will have long lasting effects for businesses that rely on this summer influx to carry them through the winter months. They were able to access this tourist cash in 2020 before the lockdowns took effect.
  3. IRD are now in a new year with the election and first 100 days behind them, how long will the COVID-19 tolerance and flexibility of 2020 last until they begin to apply pressure on those businesses and individuals with significant arrears.
  4. The minimum wage is set to hit $20 from 1 April 2021, despite MBIE advising it to delay/stagger this to assist businesses with the extra cost this will impose on their bottom line.
  5. Labour shortages, with a lack of overseas workers coming into the country certain industries are struggling to find staff for jobs that New Zealanders are either unwilling or unable to do at that price point or are lacking the necessary skills.

 

If you want to have a free chat about any issues your business is experiencing or about any other insolvency matter, please contact us on 0800 30 30 34 or email This email address is being protected from spambots. You need JavaScript enabled to view it..

If you/your client has closed down a business and needs some advice on what to do with the company (with creditors remaining or possibly a capital gain), we are available.

 

 

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