The Impact of Covid-19 Delta Outbreak on Companies under Level 3 restrictions
Many small and medium businesses are in serious strife, some hanging on by a thread. Businesses are seeking certainty about how and when they can get back to business.
A recent MYOB survey has revealed confidence among small and medium businesses is plummeting and states SME revenue has taken its biggest hit since the 2008 global financial crisis.
The drop in revenue and profits smashed from the current Covid-19 lockdowns, staff retention and skill shortages, the supply chain crisis, surging house prices, rising interest rates, closed borders, climbing inflation and general consumer confidence are all impacting business and will continue to have an impact for the foreseeable future.
The government announced a comprehensive package which is a health-based approach on 22 October. This has provided some clarity and certainty and some financial relief. Increases in the resurgence package and wage subsidy scheme are welcomed though may be too late for some?
The government has confirmed more help for employers in the shortterm and a transition grant in the new framework to boost the “gear up” as businesses reopen in a traffic light framework. In the green framework, support payments will end. We expect to see a rise in insolvency appointments soon after.
The traffic light system may open the country up domestically but there is lack of clarity on when borders will reopen impacting the viability of many NZ businesses particularly in the accommodation and tourism sector.
The NZ Herald reported on 21 October that Auckland tourism employers were worried senseless as the Auckland lockdown would stretch close to three months. The article quotes a tourism provider ''In the tourism sector confidence is at an all time low. Businesses are reporting they're not even getting inquiries, let alone bookings, for the months ahead.''
The heat on companies particularly in the retail/travel/tourism/hospitality/aviation sectors is not currently being seen with a rise in companies facing liquidation. Instead many companies have closed waiting to reopen (but now may be revisiting that view?), some have ceased to trade, paid creditors and exited altogether. Many companies are holding out relying on business resurgence, the bank guarantee scheme and wage subsidies to keep their staff employed. It is unknown whether they will be as resilient as they were in 2020 and whether they will bounce back.
Debt Collection Actions
We are noticing increased attention from IRD for companies in Level 2 regions. It is recommended for any business struggling to meet tax arrears that negotiations are entered into now to avoid a potential winding up proceeding. They IRD are open to negotiation early on. Company directors that bury their heads in the sand and have no plans in place may face less leniency and liquidation proceedings in the future. There is a steady climb in IRD initiated appointments since 1 October 2021.
If you are facing a statutory demand gain some advice early. Ignoring a statutory demand will likely lead to the service of a winding up proceeding.
What should you be considering now?
- Consider the risks of trading insolvently and how directors can be held personally liable. For example, be careful to read the terms for applying for continued subsidies and resurgence.
- Negotiate an instalment plan with IRD for historic arrears and have a plan in place. The Inland Revenue have pressure to maximise the recovery for the Commissioner under the Tax Administration Act. They are willing to work with companies that communicate early on and this can save further interest/penalties.
- Assess the viability of the business and its future. What is the position when wages subsidies end? Prepare a cashflow forecast.
- Where cashflow is an issue, consider compromises with creditors leading to some debt forgiveness and time payment arrangements or voluntary administration.
- If the company has lost too much from the impact of Covid19 and the prospects are that the company has minimal ability to repay creditors nor has a financial source to fall back on to offer a better position than what liquidation holds, then liquidation sooner may be the better option. Continuing to trade with knowledge of insolvency is a risk for the directors.
We are here to help
If your company needs some advice on the restructuring options or is likely facing the prospect of liquidation, we are happy to advise on the process and consequences.
We can also provide some advice on the options from The Regional Business Network, who may be able to assist with the funding of specific advice relating to business continuity and restructuring.