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In our 44th Insolvency by the Numbers, we look at the July 2024 data set and we review how the month has tracked compared to prior months and years. Unsurprisingly the Reserve Banks made no change to the OCR at their July 2024 announcement. Banks and independent economists now expect the first drop may come in November 2024. June quarter inflation figures came in at 0.4, bringing the annual inflation rate to 3.3. This was driven largely by tradable inflation coming down, non-tradeable (“domestic”) inflation appears to be a bit stickier however. No doubt the next quarter inflation figures may not show as much of a drop with the recent rates rises pushing through and the adjustment to tax bands…
What's the difference between bankruptcy and liquidation? This is one of the most common questions that we field from directors and individuals we don’t fully understand how the different types of insolvency may apply to their current situation and how it will affect them. Given the current climate we are in with company insolvencies on the rise it pays to understand the difference. While there are a number of detailed differences in simple terms bankruptcy is personal, and liquidation is for commercial entities (companies, trusts, incorporated societies etc.) The confusion often arises because of the use of the bankruptcy term in relation to companies in the USA which we often see in the media and on TV shows -XYZ company…
Most of us go into business because we want to make a decent living doing something we enjoy. We want to be able to provide for our families and enjoy the fruits from our efforts. One of the biggest mistakes business owners – particularly new business owners – make is confusing profit with revenue. Don’t assume just because the money is in your bank account, it’s available for you to use. As a business, you need to put your liabilities – debts, paying suppliers, payroll, tax obligations, etc – first. Remember that the money you take out of the business can’t be used for growth, and growing the business is what will allow you to continue to increase your personal…
Insolvency by the Numbers: NZ Insolvency Statistics June 2024 In our 43rd Insolvency by the Numbers, we look at our data set for June 2024. We review how the month has tracked compared to prior months and years. We once again await the Reserve Banks latest announcement around the OCR in July 2024 to see if there will be any signal of change in when the rates may drop. The consensus appears to be that there will be no change till 2025 and no signalling otherwise. There are however murmurs that when the rates begin to drop they will be dropping quickly, time will tell how this plays out. Business confidence is reaching new lows, this includes the expectation to…
Companies that have been through a formal liquidation process are difficult to restore to the Companies Register. This can often make liquidation a more attractive option for company closure than the short form removal. It provides more certainty that the company has been brought to an end. Any company restoration requires a formal application and good reason. Restoring a company to the Companies Register in New Zealand can be necessary when a company has been struck off for various reasons, such as failure to file annual returns, short form removal under section 318(1)(d) of the Companies Act 1993, or following formal liquidation. The process and requirements for restoration depend on the reason for removal. 1. Struck Off Due to Failure…
In New Zealand, the roles of shadow directors and de facto directors hold significant importance, especially when a company faces insolvency. Both these roles can carry substantial legal responsibilities and liabilities, often surprising individuals who may not even realize they are acting as directors. This article discusses the definitions, differences, and potential risks associated with these roles. Definitions and Differences Shadow DirectorsA shadow director is a person who is not formally appointed as a director but whose instructions or directions are typically followed by the officially appointed directors of the company. Essentially, a shadow director operates behind the scenes, influencing the company's decisions without holding an official title. De Facto DirectorsA de facto director, on the other hand, is someone…
Limited liability is a foundational concept in corporate law that protects the personal assets of shareholders, including directors, from being used to satisfy the debts and obligations of the company. This principle means that a company's liabilities are limited to its assets, and shareholders' risk is confined to the amount they have invested in the company. A Painting Company in Financial Difficulty Imagine you own a painting company, are the sole employee and director, and the company faces liquidation due to financial difficulties. You owe customers prepaid deposits and have incomplete work. Here's how limited liability and potential personal liability play out in this scenario: Limited Liability Protection As the sole director and employee of the company, you are generally…
In our 42nd Insolvency by the Numbers, we look at our data set for May 2024. We review how the month has tracked compared to prior months and years. In the last month the Reserve Bank has continued with no change to the OCR and indicated not to expect any reductions until 2025. We are now beginning to see a further tightening being covered in certain sectors particularly construction where new work has become scarce and those that are not busy finishing off existing projects are beginning to look to the renovation space. The government has released their latest budget showing cuts to a number of ministry’s and projects that are not deemed essential, there has also been some tax…
As we navigate the choppy waters of economic downturns, the prospect of insolvency looms larger for many businesses. In these challenging times, it is imperative for directors to be acutely aware of insolvency risks and to implement robust risk management strategies to safeguard their companies. The recent economic climate has accentuated the need for prudent financial oversight and strategic decision-making, making it more important than ever to ensure that directors are fulfilling their duties diligently. Understanding Insolvency Risk Insolvency occurs when a company is unable to meet its financial obligations as they fall due or when its liabilities exceed its assets. The Companies Act 1993 provides a solvency test that directors must adhere to, which includes both a liquidity test…
In the current economic climate, businesses are being advised to keep a close eye on costs. Certain sectors are experiencing heightened financial distress, posing significant risks to lenders, customers, and suppliers. Understanding these risks and taking appropriate precautions can mitigate potential losses and ensure more stable business relationships. Below, we outline the top 10 sectors in critical financial distress and provide strategies to protect your interests. Top 10 Sectors Facing Financial Distress Retail: The retail sector is grappling with reduced consumer spending, a big drop in consumer confidence, people working from home affecting foot traffic, the rise in crime / safety issues and high operational costs. E-commerce has also intensified competition, putting additional strain on traditional retailers. The recent announcement…
Many construction companies are facing tough times in the current economic climate. The cost of living and interest rates are creating concern. Managing cashflow and profitability during the uncertainties of long term projects can be an ongoing challenge for many companies. An equally important challenge is knowing when it’s time to get advice on whether your company can survive or not. In April 2024 Centrix reported the highest number of liquidations in nine years with construction companies leading the way. March 2024 liquidations included 56 construction companies. Centrix reported 486 construction company liquidations during the financial year ended 31 March 2024, compared to 415 in March 2023 and 262 in March 2022. Construction companies often fail more than those in…
In our 41st Insolvency by the Numbers, we look at our data set for April 2024. We review how the month has tracked compared to prior months and years. In the last month we have seen the latest release of unemployment data showing a rise to 4.3% for the March 2024 quarter, with expectation that it may continue to increase. We have seen a decrease in inflation driven largely by tradeable inflation, meanwhile the non-tradeable inflation continues to remain high, showing we still have some work to do to get over inflation in NZ. The Reserve Bank has continued with no change to the OCR during the month with the next announcement due in May 2024 hoping to shed some…
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