Company liquidations at 10-year high ‒ will it get worse?

Monday, 20 January 2025

Company liquidations reached a10-year high of 2500 last year, up 700 from 2023.

Experts expect tough conditions and business failures to continue until lower interest rates boost spending.

Inland Revenue's increased tax enforcement was also a factor in the rise in liquidations in 2024.

Company liquidations are at a 10-year high and experts say it could be some time before the situation improves.

Latest figures show 2500 companies went into liquidation last year, 700 more than in 2023.

The number of receiverships also increased by 84 to 186, the highest level since 2012.

Company liquidations have been trending upward since 2021, driven in part by increasing costs and a lack of consumer confidence post-pandemic.

Infometrics chief executive Brad Olsen said conditions were likely to remain tough over the next couple of months, until lower interest rates began to have a material impact on spending.

“Businesses will be holding out for these better trading conditions, but the tough economic times in 2024 and still a wait in 2025 is likely to see further business closures and liquidations,” he said.

“Many businesses that have been struggling will have been eating into equity and struggling to get by, and holding out for better economic conditions might not be possible for some.

“Cost increases in recent years have hit businesses, on top of the clear fall in economic activity and general spending, a double blow to many.”

Keith McLaughlin, managing director of credit bureau Centrix, said there had also been another factor at play in 2024.

“The commissioner of Inland Revenue [IR] is typically the largest driver of liquidations. IR has stepped up enforcement of compliance with tax obligations and that is leading, and will continue to lead, to a lift in liquidations.”

Together, the increased focus on enforcement and still-tough operating conditions meant further liquidations were expected, Olsen said.

However, at this stage, they looked unlikely to reach levels seen during the global financial crisis (GFC).

“Liquidations over 2024 were nearly 37% higher than 2023 […] However, liquidations over 2024 were still 35% lower than peak annual liquidations of 3872 seen over the 12 months ending June 2009.”

That context was important, Olsen said, because there had been a 39% increase in companies since 2009, but liquidations were still lower than then.

In 2009, liquidations made up 0.65% of total businesses, compared to 0.34% in 2024.

“There are clearly more businesses under a lot of pressure, but even with more businesses we still haven’t seen the same level of business destruction as in the GFC.

“At this stage it looks unlikely that liquidations would hit GFC-levels. However, liquidations and general pressure on business finances don’t always appear ‒ or become apparent ‒ immediately, meaning there could be further increases in liquidations even as the economy starts to improve in real-time, as previous tough times catch up to businesses who need to make tough decisions.”

McLaughlin said it was unlikely there would be any noticeable slowdown in liquidations until consumer confidence increased.

“We do expect to see that happen, but it will be a slow process. The easing of interest rates will have an impact on household budgets and spending, but it won’t happen immediately.

“Rent pressures could also reduce as landlords start to see those rates ease. But for now, people who do have disposable income still aren’t in a rush to spend and I think it will be quite some time before we see any easing in liquidations.”

Adding to the headache for businesses, the first few months of the year were historically more difficult for everyone, McLaughlin said.

With back to school costs and Christmas spending catching up with consumers, businesses typically saw a drop in spending.

“The next few months, up until around March, will be a struggle for a lot of people and small businesses.”