In our 38th Insolvency by the Numbers, we look at our data set for the year end 2023 in review along with January 2024. We look at how the year has tracked compared to prior years and what to we can expect in 2024, followed by a look at how January 2024 has compared to the last few years.
The latest data release shows that inflation has fallen however the portion of it generated by non-tradeable inflation figures remains high. Economists are predicting that it is unlikely that we will see an official cash rate drop till the later part of the year with come commentators still expecting the first drop in 2025. The property market however has now stabilised in a lot of regions and in some regions begun a slow climb in prices.
Globally during January, we have seen both the S&P500 & Dow Jones hitting new highs, we have also seen the release of a number of Bitcoin ETF’s in January that have taken in large amounts of investor capital.
While December 2023 took a slight dive from the figures posted throughout the year January has started slightly above its historic levels back to 2019. As seen below however 2024’s January is still behind 2017 & 2018.
As expected with the courts closed there were no creditor appointments in Jan 2024. It did not however slow the number of winding up applications as detailed below. Of interest solvent liquidations were below the numbers seen in past January’s while receiverships were up on past years, the bulk of the appointments were insolvent shareholder appointments as shareholders began to ffel the increasing pressures and have decided to pull the pin.
Anecdotally we have seen an increase in enquiries into the new year. Interestingly this has been a combination of traditional formal appointments and informal insolvency advice and work outs.
As predicted in our November insolvency articles, 2023 beat out all years back to 2018 for total appointments. So for the first time following the Covid lockdowns and Government support payments insolvency figures have finally grown year on year.
In January, there has been a noticeable variation in the total number of winding up applications compared to past Januarys. In January 2021, there were 28 creditor winding up applications and 22 being IRD winding up applications. January 2022 showed a decrease, with 18 total applications, including 13 company winding up applications and 5 IRD winding up applications. However, January 2023 experienced an increase, with 56 applications, consisting of 34 company winding up applications and 22 IRD winding up applications.
The big take away here being that for the first time in the last 4 years IRD has made more creditor winding up applications in January than all other creditors combined for the first time. A definite sign that they are continuing to keep the pressure on delinquent debtors.
When considering the total data for 2023 compared to previous years, the cumulative number of winding up applications has shown a continuous increase. This upward trend underscores the ongoing financial challenges faced by companies over time, leading to a rise in the number of winding up procedures initiated.
In December 2023, there were 45 bankruptcy filings, 32 no asset procedures, and 17 debt repayment orders, totalling 94. This continues the low personal insolvency figures shown throughout 2023. Whether this will turn around in 2024 won’t show in the figures till February onwards. My expectation however is that the figures will continue to be low compared to past years.
The signs continue to point to the NZ economy being in for continued pain for the foreseeable future with it likely to get worse before it gets better, we foresee continued rising appointments as the year progresses. The OCR is unlikely to be dropped in the next 6 months and inflation continues to be above the target of 2%.
Many NZ companies are currently affected by cash flow issues and are facing insolvency. To be insolvent means one of two things:
The Commissioner of Inland Revenue ("CIR") will take debt recovery action where debts are in arrears. The CIR is able to issue a statutory demand as a step necessary to advance a proceeding against a company.
It is recommended for any business struggling to meet tax arrears that negotiations are entered into promptly to avoid a potential winding up proceeding.
Taxpayers are required to pay their tax in full and on time. Failure to do so leads to late payment penalties and interest. These charges compensate the Commissioner for the loss of use of the money and act as a deterrent to encourage taxpayers to pay the correct amount of tax on time.
If your company receives an IRD formal demand, doing nothing really isn’t an option. Inaction will limit your options and virtually guarantees insolvency. You can also be held personally liable for failing to pay PAYE.
In certain situations the Commissioner may be able to provide assistance to taxpayers if they are not able to pay on time, or if the imposition of penalties and/or interest is not appropriate. Depending on the circumstances the Commissioner may also agree to write off or remit amounts owing (so they do not need to be paid), or agree that the taxpayer enters into an instalment arrangement (so the amount is paid over time rather than immediately).
The IRD seek open communication and are more willing to consider instalment arrangements when directors have been upfront from the start. Company directors that bury their heads in the sand and have no plans in place may face less leniency and liquidation proceedings.
The IRD can find directors liable for their company’s tax under general insolvency law. The law also says if a company agreement purposefully leaves it unable to pay a foreseeable tax liability, a director can be personally liable.
In the first instance the IRD will try for a settlement. This is your chance to negotiate terms and arrive at a compromise that allows you to stay in business while the IRD claims their tax. If you can reach a repayment agreement, the IRD won’t take the matter further.
If you’re unable to reach a compromise, the IRD will issue a formal demand, followed by a statutory demand and then issue an application for putting the company into liquidation (winding up proceeding) if you don’t settle the demand. If you do nothing the company will be placed into liquidation by the High Court.
The first step is to make contact, complete a 12 month forecast (IR591) recording what you can afford to pay and discuss the options.
The IRD offer relief options for companies with viable businesses.
The Commissioner is open to instalment arrangements towards tax arrears. Splitting up what you owe over weekly or fortnightly payments can make it easier to repay your tax debt.
The CIR may agree to collect the amounts owing over a period of time through an instalment arrangement, or to not collect the amount owing (that is, write off the amount), or a combination of the two options (that is, write off some of the debt and enter into an instalment arrangement for the remainder). An amount may be written off if collecting it would place the taxpayer in “serious hardship”.
Where an amount is considered irrecoverable, the Commissioner has the discretion to write it off. The Commissioner may write off amounts if collecting the amounts owing is considered to be an inefficient use of Inland Revenue’s resources.
Certain penalties may be remitted when an event or circumstance has occurred which is beyond the taxpayer’s control.
Interest or certain penalties may be remitted if to do so is consistent with the Commissioner’s duty to collect the highest net revenue over time.
One possibility for meeting the IRD formal demand is voluntary liquidation. This gives the director and shareholders a small element of control over liquidation proceedings. If liquidation is inevitable then the opportunity to voluntarily appoint a liquidator is usually required within 10 working days of the winding up proceeding being served so acting promptly following the statutory demand (or earlier) is advised. Waiting until the service of the winding up proceeding is not a good idea and limits your options.
If you do nothing or you can’t reach a settlement, the IRD can apply for their preferred liquidator or Official Assignee and manage your affairs and liquidate your company. In this instance the Court will appoint the IRD’s liquidator. As company director you have less control over the process and must cooperate with the Court appointed liquidator or Official Assignee at all times.
Deciding between involuntary and voluntary liquidation may not seem like much of a choice. Appointing a licensed insolvency practitioner that you believe understands you, your business and your industry, and who can consider your interests while satisfying the IRD’s demands provides more certainty of the likely outcomes. For example, with the liquidators approval, you may be able to be involved to help achieve better outcomes for your creditors and in doing so, you may reduce your own personal exposure from personal guarantees. Your liquidator can apply specialist skills to remove some of the sting from this traumatic process. Acting cooperatively with the liquidator is good advice. If you would like more advice from experienced insolvency practitioners contact our team.
Statutory and formal IRD demands are outside threats to your business. There are just as many risks that can come from within, so how do you protect your business from those?
If your company is experiencing financial difficulty, download our free guide for NZ Companies to discover your different options.
If the company has lost too much 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.
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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.
The start of the year can be a challenging time for many business owners, especially after the extended break over the Christmas and New Year period. The pressure is compounded by the need to settle various financial obligations, from employee holiday pay to tax payments.
Many businesses are facing the strain from having paid employees holiday pay entitlements, a period where income has not been generated due to closure and then obligations such as November GST due 15 January, Paye due on 22 January, Oct to Dec FBT due on 22 January, provisional tax due on 15 January and for the larger employers more PAYE due on 5th of February. Some are now struggling with the reality that these obligations are overdue.
Managing cash flow during this period is critical, and proactive steps can make a significant difference. We explore strategies to handle the cash crunch, options for arranging instalment plans with Inland Revenue, and the point at which seeking professional advice from a Licensed Insolvency Practitioner becomes necessary.
1. Assess Your Cash Flow: Begin by conducting a thorough assessment of your cash flow. Understand your current financial position, taking into account outstanding invoices, upcoming expenses, and the various tax obligations due in January and February. This knowledge forms the basis for creating a realistic plan to navigate through the financial challenges.
2. Prioritize Expenses: Identify and prioritize essential expenses. This may involve distinguishing between critical operational costs and discretionary spending. By focusing on what's necessary for day-to-day operations, you can allocate funds strategically and ensure that vital aspects of your business are not compromised.
3. Communicate with Creditors: Open and honest communication with creditors is key. If you foresee difficulties meeting payment deadlines, approach your creditors early to discuss your situation. Some may be willing to negotiate payment terms or provide temporary relief. Establishing transparent communication builds trust and can lead to more favourable arrangements.
4. Explore Inland Revenue Instalment Plans: Inland Revenue understands the challenges businesses face, especially during the post-holiday period. If you're struggling to meet your tax obligations, consider reaching out to them to discuss instalment plans. Inland Revenue is often open to working with businesses to find a manageable repayment schedule.
5. Seek Professional Financial Advice: For some businesses, the financial strain may become overwhelming, and navigating complex tax obligations may seem daunting. In such cases, seeking professional financial advice is crucial. Engage with a financial advisor who can provide personalized guidance tailored to your business's unique circumstances.
6. When to Contact a Licensed Insolvency Practitioner: If your financial situation continues to worsen, and you find it impossible to meet your obligations, it may be time to consult a Licensed Insolvency Practitioner. Insolvency specialists can assess your business's viability, explore restructuring options, or guide you through the insolvency process if necessary. Early intervention increases the likelihood of finding a viable solution and reduces the prospects of being held liable for trading insolvently.
The impacts of global unrest and overseas bank failures can have various implications for businesses in New Zealand:
1. Financial Instability:
• Market Volatility: Global unrest can lead to financial market volatility, impacting investment portfolios and affecting businesses relying on international trade.
• Credit Availability: Overseas bank failures or financial crises may tighten credit availability, affecting businesses seeking loans or lines of credit from international financial institutions.
• Exchange Rate Fluctuations: Currency fluctuations due to global instability can impact import/export businesses, affecting profit margins and pricing strategies.
2. Supply Chain Disruptions:
• Dependency on Imports: New Zealand businesses reliant on imports may face challenges due to disruptions in global supply chains, leading to delays in raw materials or finished goods.
• Export Market Instability: Instability in international markets could reduce demand for New Zealand exports, affecting sales and revenue streams.
3. Economic Impact:
• Decreased Consumer Confidence: Global uncertainties can lead to reduced consumer confidence, impacting spending habits and local businesses' sales.
• Investment Climate: Uncertainty may lead to a cautious investment climate, affecting local businesses seeking foreign investments or partnerships.
4. Financial Security and Risk Management:
• Risk Mitigation: Businesses need to review their risk management strategies, diversify suppliers, and explore hedging options to mitigate currency and market risks.
• Reviewing Banking Relationships: Assessing banking relationships and considering local banking options for stability and security in case of global banking uncertainties.
5. Regulatory Changes:
• Impact on Regulations: International financial crises may prompt changes in global financial regulations, which could indirectly impact New Zealand businesses, especially those operating internationally.
6. Government Interventions:
• Policy Changes: Government interventions or policy adjustments may occur to counteract the effects of global instability, affecting businesses through changes in taxation, trade policies, or economic stimulus packages.
In summary, global unrest and overseas bank failures can create ripple effects on New Zealand businesses through financial instability, supply chain disruptions, economic impacts, and changes in regulations. To mitigate these effects, businesses should focus on diversification, risk management, reviewing financial strategies, and staying informed about global developments impacting their operations. Additionally, maintaining flexibility and agility in responding to changing market conditions is crucial for business resilience in uncertain times.
If your company has been significantly impacted and is struggling contact one of the MVP team to discuss the options.
In our 36th Insolvency by the Numbers, we look at our data set for October 2023 and past years to see how the month has tracked and what may be coming up in the coming months.
With October and the election finally at an end, except for specials, we have an indication of what party will be front footing it into the next 3 years. The consensus that came out over the election campaign however was that getting back on the good footing may take some time, with cuts in government spending appearing to be an interesting topic. Whether this happens only time will tell, but hopefully we will see a bit of stability in the housing market and NZ stock market.
Company insolvency appointments for October 2023 combined across all insolvency types continue to outnumber all years back to 2019. As seen in the trend from prior months the higher level continues rather than peaks and troughs seen over prior years. We did see a slight drop off in appointments across the middle of the month anecdotally the result of the mid-month election, but it did pick back up after. The month does remain slightly down on the last 4 months appointments however.
As a continuation from prior months court appointments remain elevated. As a comparison the drop is seen in solvent appointments for the month. The increase in court appointment liquidations has continued strongly on the back of steady winding up applications driven by the IRD and its recovery efforts though they did see a slight drop on prior months due potentially to the election.