‘The shit has hit the fan’: Business failures hit small creditors as liquidators brace for more pain

Sunday, 9 November 2025

Liquidators say small creditors are seeing fewer payouts and business closures are expected to roll onto 2026.

New Zealand’s insolvency wave is deepening into one of the broadest and most punishing cycles in recent decades, with liquidators warning of little left behind for unsecured creditors.

Senior insolvency practitioners say many businesses that limped through the pandemic are now failing under falling demand, sticky cost inflation and weakened balance sheets, with failure rates expected to keep rising until the end of next year.

Credit Works data shows insolvency volumes have risen around 115% since mid-2022, coming off the lowest levels in more than two decades.

McDonald Vague practitioner Keaton Pronk says demand has surged after a very quiet period. In past downturns, trouble spread unevenly, but not this time.

“This time it’s a lot more widespread across the whole economy… everyone is feeling the pinch and it’s definitely going on for a lot longer.”

Unlike previous cycles, this downturn shows no clear industry containment. Papatoetoe-based liquidator Pritesh Patel says the last shock, the 2008 global financial crisis, was contained by comparison.

“The GFC was nothing. That affected particular industries. This is across the board,” Patel told the Star-Times. “Put bluntly: the shit has hit the fan.”

Sectors rolling over

Early failures in hospitality have now largely worked through the system, Patel says, driven by tight labour markets, heavy debt and razor-thin margins. Also affected are car dealerships, and the flow-on of that which is warrant of fitness approval firms, and other transport businesses.

RITANZ chairperson Kare Johnstone says Aotearoa is seeing the closure of businesses that were propped up during the pandemic.

Restructuring Insolvency Turnaround Association chair Kare Johnstone says the wave is far from over.

“We’ve seen a wave of liquidations in the last couple of years, and unfortunately I think that is going to continue for the best part of 2026,” Johnstone tells the Star-Times.

She says consumers are pulling back on discretionary spending as household budgets tighten under inflation and job-security worries.

“Consumers are genuinely concerned about their household budget and job security. We tighten our purses, and that has a knock-on impact across multiple sectors.”

Retail, construction, transport, hospitality, manufacturing and construction-linked suppliers have been among the hardest hit, with small operators especially exposed.

“A lot of these potential insolvencies are businesses that were able to kick the can down the road during Covid because they had funding. New Zealand wasn’t alone, that was global,” Johnstone says.

Insolvency volumes are now well above pre-Covid levels, up an estimated 30-40%, she says.

Smaller creditors ‘get nothing back’

The experience of small creditors who are often suppliers or customers is bleak. Patel says that by the time a liquidator is appointed, there is usually nothing left for smaller creditors.

“They basically get nothing back,” he says.

His firm, Patel & Co, has worked on several large collapses ending poorly for creditors, including labour supply firm Prolink NZ last year. More than 190 migrant workers lost jobs but Patel worked with Immigration NZ to secure new visas for affected staff.

Occasionally there are better outcomes. In the collapse of DDL Homes when nearly 300 apartments were affected, employees were paid in full, secured creditors were satisfied, and unsecured creditors received some portion of claims. But Patel says that is increasingly rare.

Patel & Co director Pritesh Patel says this business cycle has been far worse than the most recent GFC.

“We have to chase the assets, find out where they are.”

Secured lenders, employees and preferential claims are paid first; small suppliers, trade creditors and customers with deposits are typically wiped out.

Liquidators spend large amounts of time helping unsophisticated creditors lodge claims and understand security status, Pronk says.

“If the assets aren’t there, it’s very hard to get blood from a stone,” he says. “It’s not often that we’re able to pay out 100 cents on the dollar.”

The process

Distressed firms typically end up in receivership, voluntary administration (VA) or liquidation. VA aims to rescue a business but only works where a genuine turnaround is possible.

“It only makes sense if there’s a chance of saving the business,” Pronk says.

Liquidation is the most common outcome and is usually triggered by shareholders or the court. In urgent cases, interim liquidation is used to preserve assets.

“The first 48 hours are critical,” Pronk says.

Liquidators secure premises, notify banks, seize control of accounts, locate records, check PPSR (Personal Property Securities Register) registrations and trace assets. Work on other files is often paused.

The biggest creditor by value is usually Inland Revenue with small unpaid suppliers or customers falling to the bottom of the chain.

Many are “absolutely devastated,” Pronk says, particularly in cases where goods or deposits are lost.

McDonald Vague insolvency practitioner Keaton Pronk says it's getting harder to return any funds to smaller creditors.

Protecting yourself

He says suppliers can materially improve their position by establishing and registering security interests.

“You can register a security and if something does happen, you can get it back at a later date.”

He urges credit checks via the Companies Register, Gazette and commercial reporting services, and strict credit limits.

Patel urges small suppliers to get a security on goods and services supplied before getting into business: “If you supply goods on credit, you’re effectively blowing your money away.”

“It’s very important to put a security charge so you are in the pecking order slightly above the rest,” he says. “But most people don’t.”

PKF Corporate Recovery and Insolvency’s Chris McCullagh says unsecured creditors must be told early that recovery prospects are slim.

'After dealing with claims from secured creditors and preferential creditors like employees and IRD, there is usually little chance of any recovery for unsecured creditors,” McCullagh tells the Star Times. “There has to be money left after all of that, and there almost never is.”

“It’s a double-whammy. There wasn’t going to be much for creditors anyway, and the depressed market means assets are worth even less.”

“If poorly run businesses were failing consistently every year, the damage would be contained. Instead, many survive far longer than they should, then fall over together, causing far greater carnage.”

McCullagh expects the insolvency industry to remain extremely active for at least the next 12–24 months.

“Last year was difficult and this year has also become increasingly difficult,” Pronk says. “At this point we’re not expecting [insolvencies] to come down… I think it’ll continue to build.”