Q3 2022 Quarterly Market Report
BWA’s Quarterly Market Update on liquidations, insolvency by industry and the health of business in New Zealand is out for Q3 2022.
MEDIA RELEASE FROM BWA INSOLVENCY, AUCKLAND. 27 October 2022.
New report shows Kiwi business insolvencies on the rise
A new report on the state of insolvencies in New Zealand suggests that things are going to get tougher for Kiwi businesses.
Auckland-based BWA Insolvency has just released the first of its brand new quarterly updates on business health in NZ, finding that there was a 48% increase in formal insolvency proceedings between July and September over the previous period.
Total liquidations numbered 384, up 43% on the previous quarter, while receiverships were up by 243% in the same period and voluntary administrations were up 60%.
BWA Insolvency has been tracking the data on liquidations, receiverships and voluntary administrations since 2012. The Registrar of Companies Office records the filings of companies that have gone into a formal state of insolvency. BWA then does a deeper investigation on each company and categorises them to show trends across different industries.
BWA Insolvency founder, Bryan Williams, says the data provides a detailed snapshot of what’s happening in the market.
“Every industry has been affected by Covid in some way, but Government handouts kept a number of companies trading that probably would have failed without that help. Now, they’re on their own, and with Inland Revenue showing far less leniency, many businesses are fighting against some major commercial headwinds,” he says.
“The measures adopted by the Reserve Bank to reduce inflation will impact on all businesses regardless of the industry. In the short term, the blunt tool of increasing interest rates will soak up the pool of discretionary income. Consumers will be forced to reduce spending – lowered demand will cause discounting to take place and deflation to result. Margin contraction will be unsustainable for many businesses already experiencing tough times. Taking spending out of the marketplace is effective to reduce inflation, but it will kill businesses along the way,” Williams adds.
According to the latest BWA analysis, the transport and delivery sector had the biggest jump in formal insolvency proceedings and was up 229% on the previous quarter to 23. Williams puts that increase down to a shortage of drivers, as well as rising costs across the board.
“Fuel costs may be able to be passed on, but if you have increasing labour costs and a layer of interest costs to a debt-burdened vehicle, then all of a sudden you’ve got a totally different story about viability.”
The business services sector had the next highest jump, up 100% to 50. While it’s a diverse sector, Williams posits that the big quarterly increase is due in part to the change in working conditions for many businesses throughout the pandemic and the creation of hybrid working policies.
The construction industry is leading the pack in terms of overall numbers with 107 formal insolvencies, up 50%.
“It’s not difficult to see why the numbers are so high in this sector. Costs are up, it’s hard to find workers, already narrow margins are getting vaporised, and material delays are causing friction costs.”
While the food and hospitality industry is always volatile and characterised by short tenures, it has had to bear the brunt of Covid restrictions over the past few years. But the sector came in with just 35 insolvencies in the quarter and Williams says that’s because many in the industry “decide to just walk out and turn the lights off”.
“Frequently the equipment they use is leased, and they simply pass the key over to the owner of the building.”
Liquidation is the “implosion choice for a business”, Williams says – it’s when there are no more options available to the company and the shareholders become resigned to that situation. Receiverships during the quarter were initiated by secured creditors who provided high-risk tier funding to companies. Voluntary Administration continues to grow as the preferred option to reconstruct the affairs of the business so it can be potentially saved – it is also the option where new funding can be introduced.
Although there have been only eight Voluntary Administrations in the past quarter, the 60% increase suggests that it is the option being considered by the more deliberate company owner that perceives a potential for the business to survive rather than let it continue on the dwindling spiral toward liquidation.
Williams says there is no seasonality to insolvency, although there does tend to be a pre-Christmas increase.
“I suspect that’s a time of the year when business owners perceive there’s no hope and that the upsurge in the economy around Christmas is not going to get them out of the hole they’re in, and they’re probably right.”
BWA’s next quarterly report will be published in January 2024.
BWA Quarterly Market Report July – September 2022
