By Sam McKeith

New Zealand insolvency practitioners are urging struggling businesses across the country to seek financial advice as soon as possible, warning of a looming spike in liquidations due to the government’s wind-back of coronavirus support measures.

At McDonald Vague Limited in Auckland, senior associate Keaton Pronk CA says the firm expects to see a rise in liquidations in coming months, especially from restaurants, cafes and bars that were “propped up” by government coronavirus support during the pandemic.

“At the moment, the sector that’s hugely affected is hospitality because every time we go back into a lockdown they have to close their doors,” says Pronk, a licensed insolvency practitioner.

While Restructuring Insolvency and Turnaround Association of New Zealand (RITANZ) figures showed 122 liquidation appointments in August – a 14% fall from the same month last year – that dip in insolvencies is unlikely to continue, says Pronk.

That’s because many firms hit by COVID-19 restrictions would not be able to survive without government assistance, which was being scaled back from September.

When will NZ businesses fall into insolvency?

Pronk points to February and March next year as likely key months for a spike in liquidations.

“Typically over Christmas, people try and hold on because it tends to be their busier time, then they get back from holiday in January and suddenly look at their business and go ‘goodness what’s happening here?’”

For firms facing tough times ahead, he advised seeking help as soon as possible.

“It’s always better to get advice early, whether that’s chatting to your accountant or your lawyer, or your trusted adviser, just be proactive about it,” he says.

Coronavirus restrictions ease

COVID-19 restrictions have eased in New Zealand, with Auckland getting back to the same level one restrictions as the rest of country from 11.59pm on 7 October. This places no limits on domestic travel or social gatherings.

While looser restrictions will boost business activity, CA ANZ Business Reform Leader Karen McWilliams FCA says many firms will still fail due to wage subsidies, tax relief and a “safe harbour” from insolvent trading for directors being turned off.

“[These measures] have had the unintended consequence of also propping up some businesses which would have failed in the natural course of events,” she says.

“A reality check will be coming for some, once the various forms of government business support are turned off.”

If you’re in trouble, act early

Like Pronk, McWilliams urges struggling businesses to take a “hard look” at their situation now given their problems are “unlikely to go away quickly in this COVID-constrained economy”.

“Many businesses, even though they may be in hibernation mode, will still be accumulating debt,” she says.

“Many businesses, even though they may be in hibernation mode, will still be accumulating debt.”

“They may also be progressively eating into the value of assets provided as security, which for small businesses could include the family home.”

“The risk is that by not acting early, when these businesses fail, they will do so more spectacularly, possibly bringing other businesses down with them.”

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