Latest Quarterly Data Shows Insolvencies Continue To Rise

Thursday, 16 March 2023, 3:18 pm
Press Release: BWA Insolvency

The latest quarterly report from Auckland-based BWA Insolvency shows a steady increase in business failures across the country.

Between October and December 2022, 457 formal insolvency proceedings were lodged compared to the previous period between July and September when there were 417. That’s an overall increase of 10%.

Total liquidations numbered 426, up 11% from 384 in the previous quarter, and voluntary administrations were up 88% to 15. Receiverships were down slightly from 24 to 16.

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 and regions.

BWA Insolvency founder Bryan Williams says the pre-Christmas data offers a detailed snapshot of the health of the business sector.

“We are still dealing with some of the long-run effects of the Government’s Covid stimulus programme, and seeing some companies fail now that may have failed earlier without that assistance. Call it penance for the ‘free money’ that was dished out, but there is no doubt it is a very challenging environment for many businesses at the moment, with ongoing cost increases, rising interest rates affecting consumer demand, material shortages, a tight labour market and less leniency from the IRD.”

According to the latest BWA analysis, the manufacturing sector had the biggest jump in formal insolvency proceedings in the quarter and was up 80% on the previous period to 36. Williams puts that sharp increase down to increasing material and labour costs and challenges with the international supply chain, although this has improved in recent months.

The finance and insurance sector had the next highest increase, up by 68% to 37, followed by the property and real estate sector, which clocked in with 54 formal proceedings in the quarter, up 35%.

Construction once again had the highest overall number of liquidations, with 108. This was a similar number to the previous quarter.

“In this sector, you might need the money from Project B to finish off Project A but if Project C doesn’t come in, the whole thing starts to fall over. At the moment, property prices are decreasing and people are holding off building because of increased material and interest costs, so the margins get squeezed. Construction is very vulnerable to these changing dynamics. Just like the Christchurch earthquake recovery, Cyclone Gabrielle and the Auckland floods might provide a boost in this sector as there will be high demand for repairs and rebuilds.”

The business services sector, retail trade, food and beverage and tourism all remained steady compared to the previous quarter.

While Williams is not surprised to see an overall increase in formal insolvency proceedings due to the tough conditions, he says the economy has not fared as badly as many – including him – expected.

“Inflation looks to have peaked after the Reserve Bank’s interest rate rises, plus consumer spending is still reasonably strong and so is the labour market.”

Williams says one thing that links many of the liquidated businesses is that they’re typically quite small. Larger businesses are better insulated and are able to rein in costs more effectively to maintain their margins. But for some smaller operators, there’s nothing left to cut to make the business viable and there are very few assets in the business, so the owners or creditors have no choice but to shut up shop.

BWA’s next quarterly report will be published in April 2024.

Click here to download the latest BWA Insolvency Quarterly Report

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