This is a very big week for New Zealand companies. The ability to start doing business again – with some qualifications – is now a certainty. For many, this will be celebrated as a victory over a pervasive enemy. Business is ready to get back to work – and it needs to, so earnings can be created and company overheads met.
For others though, the prospect may not be so attractive. Faced with altered demand, sales may not return as they were before the crisis began. Operating overhead costs will need to be met from sources other than sales revenue. Some businesses will be facing the challenging question of what to do now. What was normal is no longer, with the problem made worse by the absence of any clear view of how business will develop in the future. There is no easy solution to this situation.
The economic effects of COVID-19 are already starting to show. Between 3 May and 10 May there was a 61% increase in insolvency appointments – made up of 28 liquidations and one receivership. There were no appointments made for Voluntary Administration. It is likely though, that as directors return to work and re-evaluate the survival of their company, they will consider the government’s initiatives to restore business health. This will include the Business Debt Hibernation scheme when it becomes law.
The heat map shows all insolvency appointments for the month of May so far. This reveals Auckland to be slightly over-represented, having 44% of the appointments made but just 35% of the total population. The remaining 56% of insolvency appointments are widely spread across the country.
Since 1 April 2020 there have been 125 appointments across 26 business sectors. Business services represent 19% of the total, with Construction at 14%. Retail makes up 9% of the total.
This week the Minister of Finance presents Budget 2020 to New Zealand, with the effects of the crisis expected to be a central issue. The Minister has the onerous task of finding the right balance between heating up the economy and containing debt. Unfortunately, not all business sectors will get what may be required, and hardship for some companies in those sectors will be the result.
Bryan Williams (Accredited Insolvency Practitioner)
BWA Insolvency Limited
The place you go when Voluntary Administration will help rebuild your business future