Underlying Conditions

Thursday, 23 April 2020, 11:44 am
Press Release: BWA Insolvency

“Underlying conditions” and “impaired immune systems” are terms that New Zealand now readily understand. They are used in the context of those people in our society who are most vulnerable to the effects of COVID-19. That same vulnerability is also a feature of companies that experienced difficulties before the level 4 lockdown began.

Many professional people are offering advice on how to get started again once the country moves to level 3 and level 2. Most commentators are providing tips on the basis that there is light at end of the tunnel. If their advice is followed – preserve cash, strip down expenses and plan in detail – then commercial life will be fine again as soon as the shutters are lifted. I do not see recovery as simple as that.

Broadly speaking, companies will fall into three categories when we move from level 4:

• those that were viable prior to the lockdown but will feel the effects of it;
• those that were suffering economic ill health before lockdown and will struggle to recover; and
• those that were successful before but will be no longer because of demand shifts.

Each case will be unique of course, but when the Minister of Finance says “we can’t save them all”, he is referring to the second and third groups.

We must be careful to not simply accept as collateral damage the struggles of New Zealand companies that were experiencing difficulties before the crisis. They employ people; they contribute to the economy.

Every director who has faced the hardship of difficult trading circumstances – lack of liquidity, damaged relationships, compliance pressures – is a much more resilient person than the business owner who has been comfortably riding the wave of recent good times. One will get up and get the job done; the other is likely to feel entitled and expect the economic effects of the virus to be resolved for them.

The government’s fiscal response to the pandemic will cushion the blow for the solvent companies – but they are not the only players in this game. To get the economy going again, fortitude and resolve will be required to confront the uncertainty and complexity of the new world, and to be successful in it. The director who has faced tough times in the lead up to the crisis is likely to be better at achieving this outcome than the business owner who was successful in large part because of the economy.

Will this crisis see the companies with weaker balance sheets go out into the snow and die? Or will the government’s fiscal measures be inclusive enough for them to survive? If they can, they will be as important to the recovery of the New Zealand economy as those companies that were on firm ground before COVID-19.

Voluntary Administration

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