Economic recap

Another month with insolvency appointment figures on a downward trend while economic factors begin to squeeze businesses.

Those factors affecting the economy are little changed from prior month updates including;

Inflation
Increasing Costs of Living (now called a crisis)
Increasing Financing Costs
Falling House Prices and Sales Volumes across NZ
Supply Chain Issues (now increasing due to China zero Covid policies)
Increasing Wages
Low Unemployment Making Finding Staff Difficult
Tightening Margins

Looking at the Xero SME index graph, it shows April 2022 up by 20 points on previous months and on an upswing. However, it does not appear to be reflected in business confidence which has been falling as several of the economic factors, if not all, continue to affect their businesses.

Speaking to businesses and a reflection of the insolvency appointments we continue to see coming in, IRD remain restrained in their pursuit of delinquent debtors, shareholder disputes are making up a reasonable portion of appointments and staffing issues are what it causing concern rather than an inability to meet debts.

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

April 2022 appointment figures have successfully met the April 2020 appointment levels. This was previously our lowest April as it was immediately after and during the first set of lockdowns.

Solvent liquidations made up 37 of the 95 appointments, which is rather high and in line with the level of solvent liquidations seen at the end of the financial year. Shareholder liquidation appointments made up only 36 appointments for the month well below the 2021 monthly average of 61 shareholder appointments and the March figure of 90 shareholder liquidation appointments.

 

Notable Appointments:

Armstrong Downes Construction The first of the larger wellington construction outfits to hit financial trouble, the fallout from this may take a number of months the be felt by other businesses in the construction space.

Insolvency by Industry

“Construction & Property Development” hold on to their largest sector award for April 2022 with the remainder of the pie graph being a bit more shared out than past months. “Professional, Scientific and Technical Services made up a 13% share on the back of a number of solvent appointments in the month and were closely followed by “Food and Accommodation Services”, who frequent the top 3 industries.

 

Winding Up Applications

Winding up applications while not quite reaching 2021 April figures are a positive upwards track from the beginning of the year. As seen in the below graph IRD has begun processing applications. They remain below their average of 54% of total applications with making up only 40% in April it is still a move in the right direction to recover the large amounts owed to them from companies.

 

Of the winding up applications in 2021 that turned into liquidations and were not settled IRD saw 56% of their winding up applications go to liquidation. For the 2022c year to date only 42% of IRD’s winding up applications have ended up in liquidation. Both percentages remain below their 2021 levels and show room for improvement before IRD is back on top of the collections they are responsible for.

 

Personal Insolvencies – Bankruptcy, No Asset Procedure and Debt Repayment Orders.

While January 2022 was one of the lowest ever level for personal insolvencies April 2022 certainly gave it a good nudge trying to come in lower. The month saw only 28 Bankruptcies, 28 No Asset Procedures and 20 Debt Repayment Orders.

 

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Economic recap

The March 2022 insolvency figures continue to be below past years. For the wider economy we saw inflation figures for the year to date at 6.9%. Slightly under what was expected from economists as a group but still well above the levels where they should be. The high inflation figures have led to an expected response from the Reserve Bank lifting Official Cash Rate (OCR) by 50 basis points in an effort to head off rising inflation.

From discussions with business owner on the coal face the cost of rising inflation, OCR raises, the rise in the minimum wage, increased sick days and introduction of new public holidays (Matariki) are a perfect storm of expenses that are unable to be absorbed by businesses. The owners are left with the option of price increases where possible or adjusting their business strategy and approach to deal with increasing costs.

Comparatively Xero has recently released their figures for SME’s with the SME index tracking up for the month of March 2022 and the debtor days dropping for collection all pointing to good signs for business. How this has been affected by the end of financial year tidy ups will be reflected in the upcoming April 2022 data.

As a country however we are heading into winter months after a 2nd lost summer of tourism, this will no doubt be tougher times for several industries. Along with China lockdowns causing further delays to shipping and supply lines. It is not yet clear sailing ahead for businesses in NZ. How reopened borders will play into this only time will tell.

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

March is one of the higher months for insolvency appointments being the end of the financial year, March 2022 unfortunately came in lower than all prior years. Not only were solvent appointments down but this was also reflected in IRD court liquidations with the full pressure seen prior to March 2020 yet to return to the vigour in which IRD has chased overdue debtors in the past.

Notable Appointments:

Auckland’s Poke Bars x3 Liquidated due to lockdowns and increasing cost of produce squeezing margins.

Insolvency by Industry

“Construction and Property Development” businesses continue to dominate their sector of appointments with “Financial and Insurance Services” (largely solvent appointments) and “Accommodation and Food Service” businesses making up 62% of total appointments for the month.

 

Winding Up Applications

By comparison winding up appointments for March 2022 were lower than the 2021 figures. Of note is that the drop is seen in the number of IRD winding up applications with non IRD applications only slightly down in the same period from 2021.

For the lower IRD applications is it likely that businesses are no longer racking up unpaid IRD debts? Have all the bad or dodgy operators suddenly changed their stripes and reformed their ways? This seems unlikely and it is more likely that the IRD is now sitting there with a growing list of delinquent debtors that they will have to do something about………eventually.

 

Personal Insolvencies – Bankruptcy, No Asset Procedure and Debt Repayment Orders.

While the total amount of personal insolvency appointment grows, they remain well below all prior March figures. The telling point for the year will be April where we see a dip in numbers or continued growth as we saw in 2019.