For our 45th Insolvency by the Numbers, we once again visit our 2024 data set and review how August has tracked compared to earlier months and years.
It has been a long time coming and surprised a number of pundits given the earlier language used by the Reserve Bank in its prior announcements, but they have dropped the OCR 0.25 basis points at their August 2024 announcement. As mentioned in out last issue this was expected for November 2024 but was brought forward perhaps yielding to the pressure, they were under from commentators and the media. No doubt they will be holding their breath in the hope that inflation continues to track down to their 1% – 3 % target.
In insolvency news we saw the first appointment of interim receivers and statutory managers since pre the GFC, both powers held by but not often used by government departments except in extreme circumstances.
You will notice this month that there is less written under corporate appointments as this is now being covered in the media each month with data from Centrix tracking changes to the Companies Register. So in an effort to continue to provide value we will focus on data that is less easily tracked as it often has no central registry, this month we will take a look at the rise of personal receiverships.
Winding Up Applications
In August we saw more winding up applications than at any time in the last 5 years. This total was once again driven by continued strong application numbers from the IRD making up 87 of the 118 applications compared to the 62 in July and 42 applications in June. We expect this drive from IRD to continue into the last 4 month of the year in a drive to collect funds prior to the Christmas closure of the courts that will see applications drop in December and January.
The High Court at Auckland has continued their dominance over the other regions courts making up 62 of the 118 applications or 53% which is expected given the bulk of insolvency appointments go to Auckland based practitioners. The next closest regions were Christchurch (12) and Hamilton with (10). The capital only saw 3 applications for the month, similar to Palmerston North (3) and Dunedin (3).
The year-to-date applications total is tracking well above of the last 4 years year to date August figures with 729 total applications as at the date of writing. Comparatively we remain above to total year winding up applications seen in 2020 (239), 2021 (562) and 2022 (623). The total applications in 2023 was 864, while I do not expect to exceed that in September unless there is a bumper month of applications.
As you can see below IRD’s dominance over all other commercial creditors continues bringing their streak to 17 months in a row where they have advertised more applications than all other creditors combined each month. For August this was considerably more applications making up 74% of the months total, where traditionally they had sat around a 50/50 split.
Personal Receiverships
The rise of the personal receiverships. It certainly looks like those business who took out lending when the going was good are now beginning to struggle to meet repayments and the security provided by the business owners is being called up in the form of personal receivership if no other recovery options are working. There has been a large jump in personal receivership appointments that can be pinpointed as starting from June 2023 that has sped up considerably in 2024.
Of the 30 appointments in 2023, 22 of these came after June 2023. To August 2024 our 8-month total is sitting on 31 appointments. With 4 months remaining in the year these will likely track up further as businesses continue to default and wind up.
The bulk of the receivership appointments have been driven by a small number of business lenders who promote themselves on providing quick and easy access to funds often at higher interest rates, with even higher penalty rates, than those available through traditional lending means.
Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations
August 2024 shot for and almost reached the March high appointments. This may seem like a bumper month when looking at the past few months but if we scratch a little below the surface, we find that 65 of these appointments came from one group of companies – Du Val Group. 65 entities and 2 individuals placed into interim receivership by the FMA and subsequently statutory management. While removing these appointments as an outlier would bring our monthly total down to 223, still above the last 5 years, but it is a sign of the times so will remain in the data set.
Total insolvency appointments for the year continue to track up in line with 2015/2016 figures. Month on month August had 288 total appointments, 131 appointments above the long-term average of 157 and past August’s (2023: 195, 2022: 178, 2021: 132, 2020: 154, 2019: 149, 2018: 176, 2017: 178)). With 1760 appointments in the year to date we above full year figures for 2020, 2021 and 2022. Compared to appointments as at August each year the total has exceeded the last 5 years totals. As outlined in past issues we expect the higher insolvency appointment levels will continue into 2025 at least due to a large backlog at IRD and a struggling economy in most sectors.
Now this is where the skew will really show from the large Du Val Group appointment alluded to earlier. receiverships now make up ¼ of the total appointment compared to the long-term average of 6%. Removing this group appointment, we can see that there was a lift in insolvent shareholder appointments and a comparative drop in solvent shareholder appointments likely driven by market conditions as businesses with spare cash become harder to find. Court liquidations as a percentage remain in line with the long-term average.
We expect increases across all types of appointments to continue throughout 2024 and into 2025.
Personal Insolvencies – Bankruptcy, No Asset Procedure and Debt Repayment Orders
In simple terms personal insolvency appointment figures for Bankruptcy, NAP and DRO remain low for the year to date in line with the very low levels seen over the last two years.
As bankruptcy is lagging indicator for the economy, we won’t see the lift in figures till after the fact, however the economy remains in a bit of a tough spot. From inflation, increasing costs of living (food, power, transport etc.), higher interest rates and other expenses, at some point individuals will run out of options and ways out. The latest drop in the OCR is unlikely to make a huge difference as it will take 12 – 18 months to take effect and will only drop certain costs, the price of goods we need day to day won’t go back down to pre-2020 levels.
While we are expecting to see corporate insolvencies continuing to grow into next year, I don’t believe we will see a lift in personal insolvencies till early 2025. There is traditionally a slow down over Christmas and January, then as people return to work and have to deal with the Christmas overspend, this may be when we see a lift in personal insolvency figures.
Where to from here?
The signs continue to point to the NZ economy being in for continued pain for the foreseeable future, it is likely to get worse before it gets better regardless of the most recent OCR decrease. We foresee continued rising appointments when compared to prior years. Inflation continues to be above the target of 1-3% and may be for some time with non-tradable inflation refusing to come under control.
If you want to have a chat about any points raised or an issue you may have you can call on 0800 30 30 34 or email This email address is being protected from spambots. You need JavaScript enabled to view it..