The real economic shock will be felt once the pandemic support has dried up. Photo / 123RF
The real economic shock will be felt once the pandemic support has dried up. Photo / 123RF
Court applications to wind up companies are still below 2019 levels, but the real impact of the latest Covid-19 lockdown will be felt next year, an insolvency expert says.
John Fisk, national leader of restructuring for PwC and chair of the Restructuring Insolvency and Turnaround Association New Zealand (Ritanz), saidthe Government's economic support for businesses may have made the statistics appear better by supporting them from failing.
But the real economic "shock" would be felt once the pandemic support dried up.
Fisk said there was also a lag from when the data was taken and when companies formally entered into the process of insolvency.
There were 520 court applications filed for liquidation for the period from January to October 2021, compared to 734 for the same period in 2018, 614 in 2019, and 416 in 2020.
"The statistics are also significantly lower than what was experienced as a result of the GFC," Fisk said.
By region, Auckland was hardest hit with 69.5 per cent of liquidation appointments made with Timaru being the lowest with only 0.1 per cent for the period January until October, 2021.
Just for the month of October Ritanz data showed there were 38 applications for winding up businesses - slightly up on the 35 in 2020 but well down on the 54 in 2019, and 60 in 2018 in pre-pandemic time.
This was a reflection of the fact that the entire month of September 2021 was spent in alert level 4 for Auckland, whereas in the same month last year, the country was in alert levels 1 and 2.
PwC Partner John Fisk. Photo / Supplied.
Fisk said these figures also did not reflect the types of business that were going to be impacted because some large businesses had done really well in the last two years, with good profits and were thriving.
"But then there are other [family owned] small businesses that are impacted. But they're not actually going into a formal insolvency process just yet. But they will find it difficult to climb out of the situation that they're in now," Fisk said.
Of those businesses that went into liquidation in October, 35 per cent were in the construction sector while only 5 per cent were in the retail sector.
Overall numbers for this year until October appeared a lot better than the years pre-Covid-19 pandemic.
But the real impact of this year's lockdown on business insolvencies would not be noticed until next year, Fisk said.
He said the latest stats may not reflect the real economic damage being felt currently because there was a lag between the time when the stats were collected, the businesses felt the shock and when they entered into a formal insolvency process.
"When you've been through these sort of economic shocks there's always a lag between the business feeling the effect of the shock, and when you actually see the statistics of business failures through liquidations and receiverships."
The Government has paid out almost $5 billion in financial support to businesses since the Delta outbreak began in August - about $940 million per fortnight, including the Resurgent Support Payment scheme.
That's on top of the $14b spent on wage subsidies alone in 2020.
Fisk said that once the Government's financial help dried up and creditors looked to recover debts, businesses would feel the real shock unless they could come up with a plan now to get out of debt and survive.
"There's been the support provided by banks, by landlords, and by the Inland revenue in terms of tax payments. So there hasn't been any kind of action being taken by creditors that are owed money that you would normally expect in the normal year," he said.
