By Susan Edmunds of RNZ
Business insolvencies are running at more than double the rate of last year, and one economist says the failure rate exceeds that of the global financial crisis.
There were 72 liquidations in October administered by the Insolvency and Trustee Service, down from 74 in September.
Of those, 37 were in Auckland.
In comparison, there were only 58 in the year to June 2019.
Simplicity chief economist Shamubeel Eaqub said the rate of insolvencies was double what it was at this time in 2023.
“It’s consistent with what I would expect and I’d expect this to continue.”
He said the coming months would be tough for many businesses, if they were not in hospitality or retail.
Cashflow was a big problem for many businesses, he said. “When they run out of cash is when all the problems really come to the surface and you tend to see that spilling over into the numbers for February, March and April.”
Economic pain was still escalating and many businesses were facing lower margins because they could not raise prices, and were selling less, he said.
“From a historical perspective this is really bad, it’s much higher than the last peak we had in the global financial crisis.”
A lot of liquidations were being driven by Inland Revenue.
“Historically it used to be other businesses calling time – not that it matters, you either have money or you don’t – but IR is getting in there earlier.
“Things are shifting all the time and it’s not just construction companies anymore.”
In recent weeks, a roofing company, waterblasting firm and security business had all been put into liquidation.
Eaqub said things should pick up next year as interest rates fell further, putting a floor under the downturn, and people started to spend and invest again, which would help the recovery.
“Even when the economy is recovering it doesn’t mean every business is lifted by the rising tide. Because of poor cashflows, lack of money, those kinds of things catch up with you and the business is just not ready to participate in the recovery.
“It doesn’t necessarily mean things are getting worse, it just means we’re in the middle of the recession even though we’re seeing some of those very forward indicators starting to pick up.”
Corporate insolvency was an extreme measure when other options had failed, he said.
“This makes up a tiny proportion of business closures. In 2024 it was 0.9% of all business closures.
“Even in normal economic times businesses close. In fact, a third fail within two years of starting, half within four years, and two thirds within eight years.”
He said there were some encouraging signs that businesses were becoming more resilient and recently started businesses were surviving longer than a decade ago.
“Nevertheless, the recession is taking its toll.”
Gareth Kiernan, chief forecaster at Infometrics, said a wider view of all company liquidations, receiverships and voluntary administrations showed that numbers were up – but not by as significant a margin as the ITS data.
He said some parts of the economy were more heavily or critically affected by the downturn than others.
“They are tough conditions out there.”
He said the drivers of the current downturn were different from the global financial crisis, when businesses struggled to get funding at just the time in the economic cycle when it would have been most useful.
This time, the downturn was more demand-driven, he said – but this was a longer period of contraction or flatness than had occurred after the GFC.
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