An analyst is warning the trend for increased company liquidations is likely to continue for the year ahead. Photo / File
The number of companies put into liquidation so far this year has surpassed last year’s total for the same period, as economic pressures and low consumer confidence impact business viability.
And one company analyst is warning the trend is likely to continue for the year ahead.
Kare Johnstone, McGrathNicol partner and chairwoman of the Restructuring Insolvency & Turnaround Association of New Zealand (RITANZ), said while the number of company insolvencies had been high recently, they hadn’t reached the levels experienced during the Global Financial Crisis (GFC) in 2008.
At that time, from January 1 to September 30, 2008, there were 3258 liquidations, with a further 2733 during the same period in 2009.
“Post the GFC there was a clear general decline in terms of insolvency appointments, and that dropped even further off the back of Covid and the pandemic,” Johnstone said.
“But what you’ll be seeing now, and we’re certainly seeing across RITANZ’s members, is that those insolvency appointments are now starting to increase to the point that if you ignore the low noise that happened during Covid, we’re now circa 40% above pre-pandemic levels.”
Johnstone said the spike in insolvencies during the GFC was linked to the collapse of property finance companies, which New Zealand no longer had the same level of.
She attributed the recent rise to an increased focus on enforcement by Inland Revenue, as well as a lag of companies in distress during Covid that were partially saved by Government support.
New Zealand Companies Office data shows the number of company liquidations in the year to date is 1974, up from 1846 at the same stage last year.
While the figures dropped during the Covid-era, partially because of Government support, company liquidations sit well above pre-Covid levels in 2019.
Johnstone believes New Zealand is on track to pass the full-year total from last year.
“Based on the numbers up to the 31st of August, we’re at 70% of the full year of December last year. In my view, insolvency appointments are continuing to rise and will continue to rise by the end of the year and into the new year.”
New Zealand isn’t alone in facing a rising number of companies in financial difficulty, with other OECD countries facing similar issues.
“There is an increase in the insolvency appointments in Australia and also further across the globe in terms of the UK and the US as well.
“As I understand it, the Australian Tax Office, which is our equivalent of the IRD, has a similar strategy in terms of enforcement and recoverability. That will be taking its toll in terms of the liquidation appointments in Australia.”
It’s a similar story for receivership appointments, although these are slightly down year-to-date at 146 appointments compared with 149.
This figure is again much higher than during the Covid-era and pre-Covid in 2019.
Many companies in receivership and voluntary administration are often still operating and could be saved, as opposed to those in liquidation.
Johnstone said a spike in 2024 and 2025 had been caused by the collapse of the Du Val Property Group, which led to a large number of companies entering into receivership, skewing the results.
Company incorporations (new businesses) and company removals (no longer registered on the Companies Office) are up in the year-to-date, with the increase in removals likely related to the increased number of liquidations over previous years.
In the year-to-date, there had been 46,731 company incorporations and 35,831 company removals, which means for every four companies that were incorporated, three were removed.
Johnstone said while there may be “doom and gloom” around companies that have collapsed, it does generate opportunities for other businesses.
“There’s an opportunity to buy the business and/or its assets, there’s an opportunity to employ staff that may have been made redundant, or an opportunity to step in and take over some of the contracts that a company may have been operating but no longer can.”
Johnstone said there were two main effects that high insolvencies would have on the wider business community.
“One is that businesses will be put under some form of distress, particularly if a supplier or customer of that particular entity has gone under. If the business owes you money, that puts a direct strain on your working capital requirements. If you lose a particular customer, that also puts stress on your working capital requirements, where you have to find another customer or more to replace that one that was lost.
“But then the flip side is that there will be opportunities for businesses to either take on customers that have now got no sort of supply. Also, if a sale process is being conducted, there are opportunities for that business to be bought and then rolled up into a competing company.”
Reflecting on the impact insolvencies will have on the wider economy, Johnstone said it was a difficult question.
“We’ve gone through a period of low inflation and low interest rates for a very long period of time, and then we went through a high inflationary time during Covid. Although interest rates have scaled back, they’re still not at the levels that they were pre-pandemic.
“As consumers, we are concerned about that. We’re concerned about our household budget and we’re concerned about our job employment. What we do among those things, which is what usually drives economic growth, is reduce our spending and tighten our purses.”
She said it was difficult to change consumer confidence and behaviour in that type of market, noting any measures implemented to bring inflation down could cause a knock-on effect in terms of businesses ceasing to trade.
However, Johnstone reiterated that while the closure of any business had an impact on individuals and their families, there are green shoots for those affected.
“I always like to end with a positive note. Hopefully, if there is some form of redundancies, that then frees up some opportunities for other businesses to pick up good people to help those businesses continue to grow and thrive.”
Tom Raynel is a multimedia business journalist for the Herald, covering small business, retail and tourism.