In liquidation: more and more Kiwi companies going bust

Saturday, 28 September 2024

Insolvency experts are picking that trend to continue. Liquidations picked up around 2021-22 after tracking downward for more than a decade.

Kiwi companies are going bust at a rate not seen since the fallout from the global financial crisis. And things are going to get worse before they get better.

Data from the Ministry of Business, Innovation and Employment shows liquidations jumped 16% in the 12 months to August. But this calendar year has been even worse with the first eight months of 2024 seeing liquidations 40% ahead of 2023.

Since the GFC of 2009-10, the number of companies going bust each year in New Zealand has fallen steadily. The worm turned around 2021-22. Insolvency experts say the reversal is a combination of delayed reaction to the Covid-19 pandemic and the economic stress of high inflation, cost of living and interest rates.

“[Liquidations] are now above pre-Covid levels,” insolvency practitioner Kare Johnstone said. “And they are continuing to rise.” Johnstone said because of its size and isolation, New Zealand traditionally lags behind others like Australia and the UK on such trends. Australia was predicting a 40% rise in liquidations this year, she said, and New Zealand could expect something similar in the coming 12 months.

Sun Dog Diner, on Carlton Corner in Christchurch, went into liquidation in April last year.

The 2024 numbers were the result of fiscal stimulus by the Government during Covid cushioning its economic blow, Johnstone said. “This enabled a lot of businesses to kick the can down the road. Now that funding is no longer available. Together with consumers tightening our purses in terms of spend, that’s putting more stress on businesses.”

Regionally, the numbers are heavily skewed by Auckland, where many national companies have head offices. By MBIE data on company incorporations, liquidations and removals, it accounts for about half of all business activity. Measuring the rate of liquidations to new company incorporations so far this year, Auckland (4.8%) is well above the national average (4.2%).

Ritanz chair Kare Johnstone says liquidations are “absolutely” on the rise in 2024.

Canterbury (3.6%) has tracked below average since 2021, but the region has had its share of high-profile collapses. Benny’s Barber and Hangar were liquidated last month owing $900,000; property developer Harry Crawford folded three companies in March owing $11m, Traffic Control Systems Ltd, a Christchurch company that maintains traffic lights across the South Island went bust this month owing $1.3m; and Francesca Voza’s hospitality companies collapsed in May owing more than $3m.

Johnstone, who is also chair of the industry body Restructuring, Turnaround and Insolvency Association of New Zealand, said the construction, hospitality and retail sectors always featured heavily in liquidation numbers and were even more over-represented now. Construction had many small companies lacking the balance sheet to withstand a recession, she said, and hospitality and retail were often the first places consumers stopped spending when times got tough. “A lot of people are concerned about the cost of living and their job security and all that puts pressure on spend.”

Kerry Payne opened 12 Taps Cider House in September 2022. He closed it less than a year later.

Kerry Payne opened 12 Taps Cider House on Lichfield St in 2022.

Eleven months later, he closed it rather than risk the business collapsing. “I could have put more money into it but I decided not to,” he said. “I think that would have been chucking good money at bad money. It was just everything. Lack of people at that end of Christchurch. The cost of living went through the roof. Interest rates went through the roof. The price of alcohol went up. Just the same stuff you hear about every day on the news.”

Payne said the venture cost him about $60,000, the last of which he was still paying off. A concreter by trade, he’d seen similar things in the construction industry.

“You talk to other tradesmen at the pub. You can see where they were last year and how much work they have in advance and where they are today. I’ve got friends, big players, who are laying off staff for the first time since the earthquakes. That’s a sign of things to come.”

Traditionally, IRD is responsible for about 60% of all applications to liquidate, and other creditors 40%. Johnstone said during Covid, this ratio flipped, but had since reverted back.

A spokesperson for IRD said the department deliberately stepped back from debt work during Covid. “This has changed and we are doing more and more proactive debt work. The more we do, the more likely we will see higher levels of bankruptcy and liquidations because some businesses are simply not viable and are unable to meet current liabilities plus deal with historical liabilities.”