If your business is struggling with debt and financial difficulties, you may be considering liquidation as a way to address your problems. However, liquidation is not always the best option for every business. Before making any decisions, it's important to consider all the available options and seek professional advice from experienced insolvency practitioners like McDonald Vague.

Liquidation is a process by which a company's assets are sold to pay off debts to creditors, and the company is then dissolved. While it may seem like a quick solution to financial problems, it can have serious consequences for the company's directors, shareholders, and employees. It's important to understand the potential implications of liquidation before deciding whether it's the best option for your business.

One alternative to liquidation is a voluntary administration, which is a process that allows a company to restructure its debts and operations while continuing to trade. Voluntary administration may be a better option for a business that is experiencing temporary financial difficulties and has the potential to return to profitability with the right management and support.

Another option is a formal or informal compromise, which involves negotiating with creditors to reach a settlement on the company's debts. This can be a less expensive and less disruptive option than liquidation, and can help preserve the company's reputation and relationships with its customers and suppliers.

Ultimately, the best option for your business will depend on a variety of factors, including the nature and amount of your debts, the company's assets and liabilities, and the potential for future profitability. It's important to seek professional advice from an experienced insolvency practitioner who can help you evaluate your options and make an informed decision.

At McDonald Vague, we have the expertise and experience to help you determine the best course of action for your business. We can provide you with a clear and objective assessment of your situation, and help you explore all the available options. We can also assist you with voluntary administration, formal or informal compromises, or other alternatives to liquidation, if appropriate.

Don't wait until it's too late to seek help for your struggling business. Contact us today to discuss your options and get the expert advice you need to make the right decisions for your business.

Economic recap

Inflation has remained constant in the final quarter of 2022 at 7.2 the same as at the end of the third quarter in 2022, it is still down from the 7.3 high point seen during 2022. While economists and the Reserve Bank were hoping for a drop this factor will be weighing on the Reserve Banks mind in its ongoing fight against getting inflation back to its 1%- 3% target band. While other developed countries across the world begin to see inflation coming under control we are not yet there in New Zealand.

Coupled with the elevated inflation we have business confidence at all-time lows as seen in surveys run at the end of 2022 and through January 2023, signalling that businesses do not have high hopes for the coming year, and we are likely to see businesses struggle throughout 2023. We have seen unemployment figures rise 0.2% with the latest quarters data being released, however staffing pressures in certain industries remain. Coupled with the extended fuel levy relief through till June 23 that will likely continue to provide some relief to the cost of living crisis.

The next Official Cash Rate review is on 22 Feb 2023 where we will likely see a rise of up to 75 basis points with a number of commentators now predicting a 50 basis point rise. With up to 50% of mortgage holders coming off lower fixed rates in the next 6 months the affect of these OCR lifts continue to be felt by consumers as interest rates double and in some cases triple.

While January is normally a slow news month the change of PM has given the media something to report on along with its increase in personal and corporate insolvency reporting that has also seen an uplift over the Christmas break, particularly if the business operated in the construction sector. In an election year these failing businesses and cost of living crises will likely play a part in election promises by the various parties and how they will mitigate the fallout to the wider economy.

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

 

December’s figures while not as high as November, were typical for the month with less work days in the month due to the Christmas break, the levels seen however were above both the 2020 and 2021 December figures. January on the other hand has started the month with appointments in line with earlier years with no court appointments for the month and professional advisors on leave appointment figures remain low. How the recent floods across the north island remains to be seen with businesses losing substantial stock to water damage and some areas (Coromandel) blocked off to visitors due to slips tourism will likely be affected.

 

From a yearly point of view total appointment figures for 2022 exceeded the 2020 and 2021 appointments. While there was a slight increase in voluntary administrations in 2022 and a reduction in receiverships the bulk of the new appointments came through shareholder insolvent appointments. Court appointments for the year remained in line with prior year ratios.

Winding Up Applications

 

December winding up figures saw the traditional seasonal drop. January however exceeded the prior 2 years winding up applications.

 

December’s corporate applications have remained similar to prior year’s figures, it is the IRD applications that have picked up and continued to rise in January. While IRD has a backlog of derelict debtors how far their recovery collections will continues into 2023 as an election year is yet to be seen.

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

 

Corporate appointments continue to follow prior years patterns with a slight lift, this has not been reflected in personal insolvency appointments. The numbers track down in the December month, lower than all prior Decembers with no lift in sight. The graph below shows the downwards slope over time and the continued reduction in bankruptcy figures and the increased portion No Asset Procedures have continued to make up of total personal appointments.

 


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..

Saturday, 10 December 2022 16:23

The Options for Struggling NZ Companies

OPTIONS FOR STRUGGLING NZ BUSINESSES

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).

The Rescue Procedures

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 goes into receivership when a receiver is appointed by a secured creditor who holds security over some or all of the company's assets. The receiver's primary role is to collect and sell sufficient of the company's charged assets to repay the debt owed to the secured creditor. Sometimes there is nothing much left and liquidation can also follow.

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.

Voluntary administration is designed to resolve the company's future direction. The voluntary administrator takes full control of the company to try to work out a way to save either the company or the company's business.

The aim is to administer the affairs of the company in a way that results in a better return to creditors than they would have received if the company had instead been placed straight into liquidation.

A mechanism for achieving these aims is a Deed of Company Arrangement. VA however suits certain companies and can be a costly exercise.  A company compromise can achieve similar results.

Liquidation versus Administration

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.  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.

 DISCLAIMER
This article is intended to provide general information and should not be construed as advice of any kind. Parties who require clarification on issues raised in this article should take their own advice

Economic recap

The NZ economy managed to dodge a formal recession (2 consecutive drops in GDP) in the 2nd quarter of 2022 with a lift in GDP following negative GDP in the 1st quarter. While the economy may not be in a formal recession there remain a number of challenges affecting NZ businesses from issues sourcing product to increasing inflation, interest rates and decreasing domestic spending as New Zealanders look to travel for the first time in 2 years. Businesses continue to have trouble to find the necessary staff with low unemployment levels continuing.

Of note is the speedily decreasing value of the NZD when compared with other currencies. This will make importing goods and services more expensive for businesses and squeeze margins.

The Xero SME index saw a drop back by 8 points in August 2022, however the index remains above the long term average. Businesses found that their days to be paid increased by.4 days to 23.9 days.

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

 

Company Insolvency figures have remained elevated in August 2022 and slightly exceeded the July figures (from 174 to 177 total appointments). Shareholder appointments made up 119 of the appointments with 20 of the 119 being solvent liquidations.

Court appointments remained high but were slightly down from July 2022 (45 to 42) but still well above earlier months in 2022. Other appointments were made up largely of receiverships however total receiverships for the year remain low at 41 compared to 2021 with 88 total receiverships.

As shown below in the Winding Up Applications graphs the current pressure from IRD increasing collections will likely result in continued increasing court and shareholder appointments in the months leading up to Christmas.

Appointments by Industry