Statistics don’t tell the story yet
The three relevant metrics for understanding the impact on businesses are – how many have become the victim of the virus, where did they operate and what did they do. For the month of April, 52% of the insolvencies were in Auckland. This is disproportionate to the population of Auckland – which is approximately 35% of New Zealand’s total population. Eight of the 46 insolvencies in Auckland were Receiverships. This is also disproportionate, when compared to insolvencies in other provinces. However, with such a narrow sample, it is not easy to reach any firm conclusions. It is arguable though, that Aucklanders are less risk averse than in other provinces.
The weekly statistic shows just 18 insolvencies for the week ending 3 May 2020. Liquidations were the most dominant at 87%, Receiverships at 9% and Voluntary Administration at 4%. Although it looks like the trend for insolvencies is declining, it is likely that this is simply the calm before the storm. It is not surprising that there are lower volumes given the lockdown and there being no pressing need to make any decisions until we are at Level 2. There will always be a lower proportion of Voluntary Administration over Liquidations given the propensity for Directors to shy away from passing over the management of the company to an Administrator. That resistance though, inevitably exposes the economically vulnerable company to liquidation when it encounters circumstances that it cannot overcome.
As to the activities of the insolvent companies, Building Services and Construction have been hit the worst with 32% of the 88 insolvencies in April being in these two categories. Not surprisingly, retail and wholesale trade together with food and beverage make up 30% of the total. It seems odd that Finance and Insurance are at 6% but perhaps that reflects the growth of financial providers that have become an alternative to traditional capital raising sources over recent years.
Given the low sample size there is no pattern yet that tells a story directly relating to COVID-19 but I suspect that is on its way.
Bryan Williams (Accredited Insolvency Practitioner)
BWA Insolvency Limited
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- The undersold solution – voluntary administration.