Debt collection actions are gaining momentum. Winding up proceedings are on the rise. There is a climb in IRD initiated winding up proceedings.

Many NZ companies have been impacted by Covid-19 and are facing insolvency. To be insolvent means one of two things:

  • Debts can’t be paid when they’re due.
  • Total debt is more than the value of all assets.

The Commissioner of Inland Revenue has increased debt recovery actions. The CIR is able to issue a statutory demand as a step necessary to advance a proceeding against a company.

Ignorance Isn't Bliss

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.

Relief Options

The IRD offer relief options for companies with viable businesses and have been supportive of businesses that have shown clear impacts of Covid-19 on their business.

Financial relief can be granted when a taxpayer cannot meet their payment obligations. The process to apply for financial relief or an instalment option is here.

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.

Voluntary Liquidation

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.

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. Your liquidator can apply specialist skills to remove some of the sting from this traumatic process.

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.

WHAT SHOULD YOU BE CONSIDERING NOW?

  1. Consider the risks of trading insolvently and how directors can be held personally liable.
  2. 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.
  3. Assess the viability of the business and its future. Prepare a cashflow forecast.
  4. 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
Our team are happy to discuss the options available for struggling companies and how to manage personal guarantees and personal exposure. Contact This email address is being protected from spambots. You need JavaScript enabled to view it.

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.

Problems in a business generally arise slowly. Problems can become disasters if not recognised and managed. Directors have some latitude in choosing to trade out of a temporary liquidity problem or to advance an insolvency procedure. Directors must carefully consider the responsibility they have to creditors and their duties under the Companies Act 1993 and if they can turn the business around.

Steps towards Solvency for a Viable Business

Insolvency is the inability to pay debts when they become due. Steps can be taken to avoid insolvency. The following are steps that can be considered for a viable business:

  • Start with a review of overheads. When considering cutting expenditure take steps to analyse the costs involved. The restructure and reduction of staffing for example can be expensive.
  • Dispose of surplus assets to improve cashflow. Often plant and machinery can be surplus to a company’s requirements.
  • Reduce stocks and work in progress in order to improve cashflow. Sell surplus stocks.
  • Re examine the company’s purchase order position and tighten overall management control.
  • Seek additional sources of new funds, such as an overdraft/loan, injection of capital, increasing the equity base or taking on a new investor. Investors will want to see the company has forecasts to profitability, that the product/service is right for market and that management is capable.
  • Good management and financial resources are essential.
  • If the company has deteriorated to the point a rescue option is a requirement, advice should be gained to avoid collapse and to ensure a planned process is in place to avoid insolvency. 

Director Considerations

In embarking on any of the steps to avoid insolvency, it is important to consider factors that can go against you as director:

  • Avoid preferring certain creditors ahead of others. A liquidator can clawback transactions from creditors who have gained a preference from an established date of insolvency (if knowledge is held of the company’s insolvency).
  • Any asset sales need to be at market value. A liquidator can challenge transactions at under value or to related parties and transactions for excessive consideration.
  • A sale of a going concern can be difficult to advance when losses have been incurred or the trading position has deteriorated. Due diligence by interested parties can take time and creates delay when at a time when a company is running out of cash. Continuing to trade whilst insolvent can lead to director liability

Rescue Plans

The purpose of a rescue operation is to ensure a business becomes profitable. This requires a plan and a somewhat ruthless approach.

An option for a company that is struggling is to offer an informal compromise to creditors seeking 100% support to instalment arrangements and usually some debt relief. This is advanced where the company is viable and has suffered a setback. These arrangements requiring 100% support however are difficult and all parties can become disillusioned and failure can lead to liquidation by application to the High Court by a disgruntled creditor. The informal process if managed well can buy a moratorium if full support is gained.

Companies Facing Financial Distress – formal turnaround options

If the company's position has deteriorated to a point where a rescue option is required, advice should be gained early. Continuing to trade an insolvent company and increasing the exposure to creditors can find a director personally liable.

An option for a company in financial difficulty is to offer a formal company compromise under Part XIV of the Companies Act 1993, where creditors by class vote on a proposal for payment usually over a time period and often agreeing to a lesser amount. The proposal needs to show it will provide a better outcome than an immediate liquidation. The company compromise requires a majority in number and 75% in value of creditors voting by class on the matter to support it. The non-voters and non-supporters can be bound by those voting in favour if the requisite majorities are gained.

A voluntary administration (“VA”) is a more structured form of company compromise with an independent administrator engaged to review, manage and rearrange the business and financial affairs to generate the best outcome for a business owner and for creditors. The administrator's focus is to provide creditors and shareholders with a better financial return than might have been achieved were the company put straight into liquidation.

Business Failure in NZ

If the company has failed and has minimal prospects of recovery then liquidation is advanced. A liquidation can advance voluntarily by 75% in number/value of shareholders appointing a liquidator or by the application of a creditor to the High Court (by way of a winding up proceeding) or less common by the board of directors should the company constitution allow.

A secured creditor also has options where concern arises. They can appoint a Receiver and Manager subject to the terms of their Security documentation. The Receiver can seek to sell the business as a going concern and clear the secured creditor’s debt.


For advice on insolvency options contact our team on 0800 30 30 34.  We are here to help.

 

Related Article:

https://www.mvp.co.nz/articles/business-recovery/creating-a-business-strategy-to-survive-and-thrive 

COVID-19’s impact on the business world is unprecedented, presenting a challenge to all companies and businesses. Some companies have evolved quickly and some have or are falling behind.

Managing a business is a delicate balance anyway. The deadlines, the finances, cashflow, controlling costs, the need to generate income and improve margins, the human emotions, staff needs, skill shortages and with Covid-19 in the mix, it is simply hard to navigate.  Many businesses will rise to the challenge and get through it. Some businesses are no longer viable. Many have closed the doors or considering it.

Struggling NZ Business in First Quarter 2022 – the Why

NZ business owners have struggled in the last while with lockdowns, inflation, increased oil prices, increased freight, global impacts on the NZ dollar, increased interest rates and now we are facing the rapid spread of Omicron, self isolation, more working from home, the impact of protests/mandates and more uncertainty offshore.

Many NZ businesses are suffering and the latest support payments in March 2022 will barely put a dent in the fixed overheads let alone any variable costs. Cashflow is tight for many and the outlook uncertain.  Much of the downturn in business profitability being faced now is out of a business owners control. The statisticians for example say in Wellington foot traffic is down 47% on prior years. Auckland is down 38% of this time last year and 56% compared to two years ago. The prediction is 58% of hospitality businesses will close in the next month – some not indefinitely. 

The impact of Covid on business has been sombre. The company strike offs are on the rise. Debt collection activity is on the rise. The media are saying the probability of recession is rising from the emergence of Covid and the negative impact of high interest rates and inflation.  

It is not however all doom. There is some upside and some have had strong balance sheets with NZers spending in NZ. The dairy industry is doing well. As the borders open, tourism will change dramatically. Travel agents are seeing strong interest in bookings offshore for holidays and to visit family/friends. Some businesses will see an upturn in the near future. There is light at the end of the tunnel.


Options for Struggling NZ businesses – the How

If your business is at the point of spiralling out of control, speak to your professional advisors who may be able to help your business. The pressures now on business are high and it is difficult. There are options for struggling businesses to consider whether that be to restructure or to bring the business to its end.

There are three rescue procedures in NZ, the compromise (Part 14), the Court approved scheme of arrangement (Part 15) – an option seldom used, and Voluntary Administration (Part 15A).

Liquidation is not a rescue procedure. It is usually a terminal procedure. Liquidators typically trade only for a short term for the purposes of the liquidation. The purpose of liquidation is to realise and distribute assets, not business survival.  Some companies however advance liquidation for the purpose of restructuring and to purchase back part of the business from the liquidator (at market value). Some companies advance liquidation with a known purchaser lined up to purchase the business in a clean structure. The consideration attributed is often pre approved by the secured creditors in these cases.

Receivership can be a rescue procedure. It can result in the rescue of viable parts/businesses but the primary duty of a Receiver is to get the best return for the secured creditor (usually the bank). Business survival may be an outcome. Banks may agree to a VA proceeding to avoid the negative publicity from appointing a Receiver or to protect the value of the business goodwill achieved from the stay in an Administration.

A company compromise under Part 14 of the Companies Act 1993 is a useful method without (in theory) having to go to Court. There is however no automatic moratorium (like with a VA) so sometimes you go to Court anyway. A compromise requires the identification of classes of creditors and 75% approval by class. There is often no outside independent manager involved. The compromise is the likely least expensive option but it requires approval to essentially be assured in advance. It works well for smaller companies with lesser creditors involved.

A Voluntary Administration is advanced where the company is cash flow insolvent or likely to become insolvent. No Court application is required. The Board of directors can appoint an Administrator. If there is a winding up application (by a creditor) on foot, the Court will likely adjourn the winding up application if the Court is satisfied that it is in the interests of the creditors (Section 239ABV, Companies Act 1993).  A business must be truly viable to be successfully rehabilitated. The appointment of an administrator for any other reason apart from rehabilitation is unlikely to gain the requisite support.

Liquidation versus Administration
A liquidator can only trade on for limited purpose of winding up. An administrator on the other hand has wide powers including the power to borrow. Some contracts will have termination clauses on liquidation but not on Administration. Both options have their advantages.
The best option is best discussed and well considered before advancing. Contact our team for advice on the options available if your business is in need of rescue, restructure or an orderly termination.

If any of these options may help you bring an end to a messy situation or to survive and thrive, contact one of our Licensed Insolvency Practitioners or email us at This email address is being protected from spambots. You need JavaScript enabled to view it. for some advice.

 

Economic recap

With inflation figures for the final quarter of 2021 coming in at 6%, it was of no surprise that the OCR would be getting a lift from the Reserve Bank, the question was how much? Last month we mentioned the possibility of a 50-basis point lift with a few commentators backing this size lift. We ended up seeing a 25-point lift with the Reserve Bank using strong language that the next OCR review would likely see the rate lift 50 basis points.

The consensus seems to be that with the invasion of Ukraine, we will see inflation continue its upward trend for the year. Adding to the trend are the food cost increases and the possibility petrol prices will tip $3 per litre before too long. Depending on how high it goes is yet to be seen, there has been mention of inflation at 10% by the end of the year and petrol at $5per litre. While this may seem a long way to go from our current levels, we still have many months to go in 2022. No doubt our council rates review due out in March 2022 will show a lift in rates prices for all homeowners causing more inflation pressure.

Recent house sale volumes to date show a fall in sales for the January period, as pressures continue to mount on borrowers making financing more difficult to obtain. For SME’s business lending continues to remain difficult unless secured over a property but even that will come under pressure with the expectation of falling property values.

Cashflow should in our opinion be the business owners primary focus alongside a focus on the quality of any expenditure. For example review whether your cash outflows are paying core debts/trading obligations or being applied to payment default costs/interest. Is your business getting ahead or likely to. Are you favouring one party over others? You should not be without advice.

With increasing Omicron cases day by day, the peak is expected by the end of March; the government has introduced further business support. The comparison period is for the 6 weeks prior to 15 February which includes the Christmas period, a traditionally quieter period for businesses, meaning that this will be a difficult support payment for businesses to qualify for. At present Hospitality and Retail continue to struggle, as people treat the rising cases as reason to maintain a self-imposed lockdown and everyone now seems to know someone who has Omicron.


Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

Corporate appointments for January 2022 are similar to figures from previous years. As expected, court appointments over this period are non-existent given the Christmas closedown for Solicitors and Courts.

66% of the liquidation appointments are made up by insolvent shareholder appointments, the remaining appointments are solvent shareholder appointments.

To date it looks like the February appointments will follow past year trends but whether they will reach the 2020 and earlier year levels, we will only know at the end February.

 


Insolvency by Industry

“Construction & Property” industry company appointments continue to make up the largest sector. These figures include both solvent and insolvent appointments. “Accommodation and Foods Services” have risen to 3rd following Financial and Insurance Services. These three sectors total over 50% of the total appointments for January 2022.

 


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

Personal insolvency levels are at their lowest all-time levels since all 3 personal insolvency options became available to the public.

Of the of personal insolvencies figures, No Asset Procedures made up just under 50% of all insolvency procedures.

 


Winding Up Applications

Based off the numbers that were seen in December 2021, it is hard to not go up from here. As with any build back up, this will take time, in addition to the bulk of solicitors and professional services firms taking at least half of January off as happens every year with the Christmas closedown.

 

If you want to have a chat about any points raised or an issue you may have you can call on 0800 30 30 34 or email This email address is being protected from spambots. You need JavaScript enabled to view it..

 

Friday, 03 December 2021 19:37

Criticism by the Courts - Liquidator Fees

Liquidations advanced through the High Court require Court fee approval in most cases.

Shareholder appointments also subject to some form of review and oversight. In some liquidations a committee is appointed.

Every insolvency practitioner now needs to be licensed and is subject to a complaints and disciplinary process.

A reasonable and competent liquidator should take into account the amount owed to creditors, the prospects of recovery and consider the cost versus benefit of advancing claims and legal actions. It is a liquidator's obligation to maximise the return to creditors and to act in a reasonable and efficient manner.

There have been a number of cases now where liquidators have been scrutinised for charging excessive fees.

Liquidators facing criticism

It was recently published that creditors of a hydroponics company were entitled to be paid more than $56,000 from the reimbursement by the liquidators of fees taken after the High Court deemed the fees were "not reasonably incurred" and hard to justify.

In 2020, another Liquidator faced the Court reducing their fees by 25% in one case and 67% in another. The Judge said "If this liquidation had gone to smaller insolvency practice, I am satisfied the liquidation could have been completed in a shorter time."

The most recent case highlights that Liquidators seeking to discharge their duties should do so with costs and benefits clearly in mind; the benefits ordinarily being those to the creditors. The costs of litigation have to be reasonably incurred and proportionate.

The High Court has the ability to fix a global sum as remuneration if a liquidator has supplied too little information to enable a clear view to be formed on whether the amount claimed was reasonable.

The liquidator bears the onus of establishing that the claimed remuneration is “reasonable” and that the benefit of any doubt, based on the inadequacy of information provided by a liquidator, should be resolved in favour of the creditors.

Case Authority

The Court in Medforce found there must be enough information to enable an assessment of whether the total costs charged are reasonable.

As a minimum a statement of the work undertaken during the course of the liquidation, together with an expenditure account sufficiently itemised to enable the charges made to be related to the work done is required. The Court said “The detail would have to be sufficient to enable the judicial officer to determine whether the personnel involved in the liquidation and their respective charge-out rates were appropriate to the nature of the work undertaken. This information may in some cases raise concerns as to whether there has been overservicing and overcharging. If there are suggestions of this in the information provided, the Court can request further information. “

The leading case, Re Roslea Path Ltd (in liq), deals extensively with the principles and practice on applications to fix liquidators’ remuneration. The Court held that “in fixing a liquidator’s remuneration, it is determining the fairness and reasonableness of what has been charged when measured against the work undertaken and the result achieved. Fair and reasonable remuneration is the value of the services to the creditors and shareholders. Value is an elusive concept which goes beyond mathematical application of hourly rates to hours spent in administrating the company’s affairs.”

The New Zealand Courts support an Australian decision, Conlan v Adams that focussed on where time had not been used reasonably:

(a) work beyond the power of the liquidator;
(b) work done negligently;
(c) unnecessary work (covering decisions to carry out the work and over-servicing);
(d) work by people with inappropriate seniority; and
(e) work at inappropriate rates.

Summary

The recent judgment encourages liquidators to disclose relevant information as to remuneration to creditors during the liquidation.

If liquidators take a course of action which is not required in the liquidation, the court may disallow both their expenses and their remuneration for that course of action.

The legal basis is that regardless the court’s power of review of remuneration under ss 276 and 284, liquidators have no right to claim for expenses not required for a liquidation. Under Schedule 7(1) of the Companies Act, liquidators may be paid only “the fees and expenses properly incurred”.

At McDonald Vague our objective is to maximise the return for creditors. We do not always achieve a return for unsecured creditors but have a good reputation for taking a firm and fair approach and getting returns. Cost/benefit is always a consideration.

 

Relevant Articles:

How our firm works for you
Who pays the liquidator
Liquidators Duties and competence

Business Advice to Auckland based businesses

The Business Advice & Implementation Grants are now available for application.  Auckland businesses can apply for up to $3000 + GST through Business Advice support.  An Implementation Grant will pay for specific services to put your business advice or plan into action. 

If you’re looking for expert advice and support in areas such as Continuity, Financial Planning, Business Hibernation, Compromises or Exit, we can help get you there.  You can access advice if you are considering hibernating or closing your business, or are looking to restructure.

The advice should lead to a plan to overcome challenges and/or identify opportunities and map out the scope of the work required to achieve the plan. 

Implementation Grant

You can also register for help to put your business plan or advice into action – either an existing business plan or a plan based on the Business Advice received through Activate Tāmaki Makaurau.  The implementation grant is $4,000 + GST.

Eligibility to Access Business Advice and an Implementation grant

Your business needs to:
• be operating with 100 full time equivalent employees or less
• be GST registered in New Zealand
• have a New Zealand Business Number (NZBN)
• be operating in a commercial environment
• be a privately-owned business or are a Māori Trust or incorporation under the Te Ture Whenua Māori Act 1993 or similar organisation managing Māori assets under multiple ownership
• primarily operate within the Auckland Alert Level 3 boundary
• be an existing business that is trading prior to 22 October 2021

Register for Support

Businesses need to register for Activate Tāmaki Makaurau support. McDonald Vague have registered with Activate Tāmaki Makaurau.

Business Advice, register here

Implementation Grants, register here

Our Service Offering

A review of the business, including a review of the company’s cashflow and financial management, and a restructuring/turnaround assessment to determine whether the business should:
- Continue to trade – implement financial and cashflow management, business continuity planning, consider new opportunities and customer identification, operational improvements, and business coaching
- Restructure the business – implement financial and cashflow management, scale down/streamline operations, customer identification, and debt restructuring
- Wind down and close the business – implement liquidation planning and support

First Steps - Contact us on This email address is being protected from spambots. You need JavaScript enabled to view it.  for further information and to assist with the application.

We’re here to help your business.

August 2021 has been a story of two halves. Between 1 and 17 August 2021, the outlook for economic growth was continuing to look positive. On 17 August 2021, the government called a press conference and, at 6:00 pm that evening, Jacinda Ardern told New Zealand that the country would be moving to alert Level 4 from 11:59 om that night. From 18 August 2021, most businesses were again forced to shut their premises as we returned to Level 4 lockdown and our home bubbles. Those of us that could, readjusted to working from home but Level 4 left many businesses unable to operate. The short notice also meant that many businesses – including those in hospitality, agriculture (who do not supply to the supermarkets), and floriculture – suffered huge losses of product as a result of the lockdown announcement.

Since the COVID-19 pandemic began, at least part of New Zealand has been in an Alert Level 3 or Level 4 lockdown for a total of 91 days to the end of August 2021. All of September and at least part of October will add to this total.

 

According to Statistics New Zealand, electronic card transactions in August 2021 was $6.433 billion, down $1.257 billion when compared to July 2021. Spending on consumables was up by $216 million but spending in all other categories were down:

The increase in the OCR that was being anticipated in the first half of August 2021 did not eventuate at the 18 August 2021 OCR announcement, a decision made off the back of the just re-introduced Level 4 lockdown. The Reserve Bank confirmed that the OCR is below the neutral interest rate, estimated to be around 2 percent, and said that its economic projections imply OCR increases are coming. The language used at the OCR review in August 2021 strongly suggested that the OCR could increase as early as 6 October 2021, when the OCR is next reviewed. We will know shortly whether the Level 4 and Level 3 lockdowns, especially in Auckland, have caused further delays to the anticipated OCR increases. Further increases to mortgage lending rates by the banks in September 2021 indicate that expect the answer to be no.

If you want to have a free chat about any issues your business is experiencing or about any other insolvency matter, contact us on 0800 30 30 34 or email This email address is being protected from spambots. You need JavaScript enabled to view it..

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

In August 2021, New Zealand spent 14 days in Alert Level 3 or higher. While the total number of corporate insolvency appointments in August was only down by 11.4 percent when compared to July 2021, the appointments over the lockdown period account for just 29.5 percent of the month’s total appointments.

There were four receiverships in August 2021, all of which started before the country went into Alert Level 4 lockdown. Four companies that entered voluntary administration earlier this year were put into liquidation at their watershed meetings this month. Of the two voluntary administrations in August 2021, one of the companies is now in liquidation and in receivership and the other has not yet reported on the outcome of its watershed meeting.

 

If the country had not gone into lockdown in the middle of August 2021, we expect that the appointment numbers would have been closer to the August 2019 (149) and August 2020 (154) appointments and the year to date appointments would have continued to approach the level of appointments in the year to date in 2019 and 2020.

 Notable insolvency appointments in August:
- Three of the Sacred Hill Vineyard entities have been placed into liquidation. These companies have been in receivership since May 2021.
- WNMC Limited (Wellington Night Market Cuba) is no longer trading and has been put into liquidation.
- Diners Club (NZ) Limited, who used to provide credit card services through The Warehouse, is going through a solvent liquidation.

Personal Insolvencies - Bankruptcy

The personal insolvency numbers have been fairly consistent since April 2021. The number of bankruptcies in August 2021 were lower than in July but the number of Debt Repayment Orders was higher.

As the cost of living continues to increase and businesses are put under more pressure, we expect that there will be more payment defaults and demands made on guarantors. Personal insolvencies are likely to increase as a result.

 

Winding Up Applications

The number of liquidation applications was the lowest year to date in August 2021, with only 41 advertisements appearing. By way of comparison, there were 75 advertisements in July 2021 and 83 advertisements in June 2021. The IRD advertised half as many applications in August 2021 as it did in July 2021.

 

We expect that the inability to serve documents at Alert Level 4 has affected the August advertising figures. The extension of Alert Level 4 into September and Alert Level 3 into October 2021, together with the IRD and many other businesses putting debt enforcement on hold while businesses are affected by lockdowns, will mean that advertising of winding up applications will be affected by the lockdowns for some time.

Many businesses are suffering from lower turnover because of lockdown why still incurring fixed overheads and operating expenses, which means many businesses have been operating at a loss for some time now. A number of Auckland retail businesses also lost out on potential sales when Auckland was in Alert Level 4 so could not operate but the rest of New Zealand was at Alert Level 2 and able to dispatch goods to Auckland customers.

While everyone understands that most businesses are doing it tough, the situation is precarious. For every business that closes its doors, employees will lose their jobs. While a company’s suppliers may be able to provide some breathing space in the short term in the hopes that the business’ cash flow will recover, that supplier will also have to deal with its own creditors. To date, we have not seen very many iconic businesses fail in New Zealand as a result of COVID-19.

When Mainzeal collapsed, there was a domino effect through the market, the effects of which are still at play. It remains to be seen whether, when (or if) the first large New Zealand business fails because of the COVID-19 pandemic, the house of cards will come tumbling down.

 

Video Link Here

July has mirrored the insolvency appointment figures over the last couple of months. The pressures affecting our economy have also remained fairly consistent over the last few months:
- Countries are continuing to fluctuate in and out of COVID-19 lockdowns
- Businesses and consumers are facing ongoing shipping delays and supply shortages
- Consumer demand for goods continues to exceed supply in many areas
- Labour shortages remain an issue
- Inflation remains higher than RBNZ’s targets and the affordability of goods remains an issue

To the end of July, the outlook for growth has continued to look positive:
- Unemployment rates have now fallen to pre-COVID-19 rates.
- The construction industry and the housing market continue to run hot
- Consumer spending remains strong
- The Reserve Bank has halted its Large Scale Asset Purchase programme

At the beginning of this week, most economists were predicting that the OCR would increase in the first time in 7 years. While the messaging continues to be that we should expect the OCR to increase before the end of the year, with a view to moving to an OCR of 2% by the end of 2023, subject to the impact of the latest COVID-19 lockdown. By the end of July, banks had already increased interest rates over the last couple of months, anticipating the August 2021 OCR increase that did not eventuate. We doubt that banks will decrease their mortgage rates before the next OCR update, given the indications that we should still be expecting the OCR to rise.

Data shows that 80% of residential borrowers currently have their mortgage interest rates locked in for 1 year or less, largely as a result of the historically low mortgage rates that have been on offer over the last few years. For new home owners with a 30 year mortgage, a 2% increase in mortgage rates will increase the monthly repayments on a $500,000 loan by around $550 per month. If wages do not increase in line with the cost of living, many could struggle to meet theses higher repayment obligations.

If you want to have a free chat about any issues your business is experiencing or about any other insolvency matter, contact us on 0800 30 30 34 or email This email address is being protected from spambots. You need JavaScript enabled to view it..

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

The number of company insolvency appointments in July 2021 were:
- Consistent with May and June this year, both by number and type of appointment
- Comparable to July 2020 but there were significantly more court appointments in 2021 (up around 68%)
- Down 20% compared to July 2019

The spike in solvent appointments is likely attributable to companies waiting for their financial statements to be prepared following the end of the 31 March 2021 financial year and other companies having a 30 June or 31 July balance date.

The number of liquidators being appointed by the Court on insolvent liquidations increased from 37% in June 2021 to 44% in July 2021. This trend is not surprising, given the number of liquidation applications that have been advertised in 2021.

Notable insolvency appointments in July:
- Receivers have been appointed over West Coast Brewery (New World Investment New Zealand (in receivership)). The business was listed for sale after one of its key people, a non-resident, could not get into New Zealand due to COVID-19 boarder restrictions. When the receivers were appointed, the business had not yet been sold.
- Many of the companies that were subject to insolvency processes this month operated in the following industries:
o Construction
o Dairy
o Forestry
o Hospitality

Personal Insolvencies - Bankruptcy

The number of personal insolvencies has been fairy consistent month on month since April 2021. Bankruptcies were around 24% higher in July 2021 than in in the previous few months, which correlates to fewer no asset procedures and debt repayment orders in July. This shift might indicate that the there has been more payment default on bigger debts.

As the cost of living continues to increase and more companies fail, we expect that there will be more payment defaults and demands made on guarantors. Personal insolvencies are likely to increase as a result.