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Home / Business

New Zealand company liquidations spike again as firms default on their debt - Centrix

Rahul Bhattarai
By Rahul Bhattarai
Multimedia business journalist - NZ Herald·NZ Herald·
4 Aug, 2021 11:00 PM3 mins to read

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More companies in New Zealand face liquidations as firms default on their debt. Photo / 123rf

More companies in New Zealand face liquidations as firms default on their debt. Photo / 123rf

New data shows a sharp increase in company closures in the three months to June as credit defaults rose 6 per cent, although the general business environment remains positive.

The latest data released by the New Zealand credit bureau Centrix revealed company liquidations were up 8 per cent between April and June in New Zealand.

The increased closures appear to have been voluntary, Centrix said, with Companies Office data showing liquidations having fallen by 33 per cent over the past year.

Despite this, the general business environment remains positive, with new company registrations remaining strong, up 5 per cent.

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Centrix group managing director Keith McLaughlin said while the reason for each closure would be unique to the individual circumstances. It was no coincidence that over the same period business credit defaults increased by 6 per cent.

McLaughlin said in the past 12 months the default has risen quite dramatically and he expects the trend to continue over the coming months.

"Over the June quarter to 1700, with the average default at about $4000," he said.

"I would expect in a month's time for the defaults to be up even further," he said.

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Many smaller firms were experiencing cash-flow issues and this was a clear warning sign that some of the businesses would not survive.

McLaughlin said the actions that the business should take was to pay the debt that was in arrears rather than creating new sales.

"So if I can't pay this month and if I can't pay last month then next month I have three months to pay so it becomes cumulative over a period of time.

"That is a warning sign that people should really start to have a look at what's going on," he said.

Although in contrast to the business sector, the credit market was "quite good from a personal perspective", he said.

The Centrix report revealed this month saw a continuation of the recent downward trajectory in the average credit score, with the average credit score sitting at 640, the lowest this year.

"This is likely the result of a cooling housing market, resulting in fewer mortgage applications, combined with an increased demand for personal loans and credit cards over the past month," the report revealed.

Non-mortgage consumer lending had fallen from its record high in May – down 17 per cent month-to-month, including new mortgage lending down by 4 per cent.

But it remained up by a "staggering" $2 billion year-on-year and demand for new credit cards is increasing but still remains down at 30 per cent on pre-Covid levels.

"Personal loan applications are also at their highest level for the year, as an increasing number of consumers turn to unsecured finance," Centrix reported.

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