Welcome to the 2021 statistics.
January is traditionally a quiet month for appointments across all forms of insolvency and 2021 is no exception. With the courts closed for most of January, many companies extending their Christmas close down periods well into January, and the bulk of the country holidaying at the bach or camping in the great outdoors with the children, not a lot happened on the insolvency front. Typically, appointments begin to track up from February onwards.
Many of the woes from 2020 – changes in consumer demand, shipping delays, the loss of overseas tourists, domestic tourism visiting different destinations and spending less than their overseas counterparts, lower than expected income over the summer trading period, minimum wage increases, and labour shortages – are expected to continue to affect businesses well into 2021.
January saw winding up application advertising increase compared to both January and December 2020 but none of these applications were made by the IRD. A preliminary look at February 2021 figures to date suggest that the IRD has finally begun to put some formal pressure on some companies, after months of generally being trigger shy. We will discuss this further in our February stats analysis.
February 2021 brought another lockdown but this time it was only for a week. Still, the flow on effects will be felt in the months to come, especially because many businesses rely heavily on sales over the summer trading period to carry them through the slower winter months. Now more than ever, for many businesses, every dollar counts.
There were fewer corporate insolvency appointments in January 2021 than in any other month going back to January 2016 (when our monthly appointment stats start) and every month of 2020 saw more than double the number of appointments when compared to January this year. As expected there were no court appointments.
We continue to see both personal and corporate insolvencies tracking down over time, as has been happening over the last decade. The last big upward spike in appointments flowed from the global financial crisis.
We found only one January 2021 number that was higher than its 2020 counterpart – the number of winding up applications advertised. Is it an omen that there will be an increase in creditor applications this year? Will more applications lead to more court appointments of liquidators? Only time will tell.
We expect that many marginal businesses that survived 2020 thanks to financial support from the government and inaction by their creditors will start to have real difficulties in 2021, as the leniency granted to debtors by many institutional, corporate, and SME creditors in 2020 in order to “be kind” starts to be withdrawn.
McDonald Vague have a team of licenced insolvency practitioners with experience across corporate insolvencies and assisting individuals with alternative options to bankruptcy. We can assist with company compromises, voluntary administrations, receiverships, liquidations, and personal proposals.
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.
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.
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.