Company failures soar by 40pc

The number of Kiwis walking away from their failed businesses is increasing. Photo / Kenny Rodger

Failures of New Zealand companies are up over 40 per cent on the same time last year.

Ministry of Economic Development figures show that in the seven months since July 2008 a total of 3487 companies have run aground - 3270 have gone into liquidation, a further 217 into receivership.

In the same period the previous year, 2424 companies hit the wall, made up of 2344 liquidations and 80 receiverships.

The worst month was December, when 594 companies failed - 560 liquidations and 34 receiverships.

Liquidator Damien Grant of Waterstone Insolvency said applications to the court where a creditor applies to have a debtor company wound up were way up. His records show there were 236 applications in February.

Grant said the tax department was behind many of the liquidations.

"Applications made by the IRD are really starting to crank."

He was also noticing companies taking much greater advantage of the 10-day rule, in which they had 10 days after a creditor application was made to put themselves into liquidation.

A year ago many businesses did not seem aware they had that option.

"Some companies are going into liquidation earlier than they otherwise would because the company director wants to control the process and appoint their own liquidator."

Grant said that, bad as the MED figures looked, it had to be remembered that the collapse of some businesses - such as the Blue Chip property scheme - resulted in many liquidations, whereas one large failure could be recorded as just one liquidation.

He said his company was so busy that it had doubled its staff.

Kerry Downey, partner in insolvency specialists McGrath Nicol, said the pain was being felt across the board.

Businesses were being hit by common factors such as declining orders and customers not paying their bills.

"If they're used to a 60-day cycle they're going to 90 days, or trying to. And that has a domino effect right through the cycle."

Businesses were even trying to renegotiate their leases in an attempt to cut costs, a strategy that smacked of desperation, Downey said.

McGrath Nicol's staff numbers would be up 25 per cent by the end of the year, he said.

The firm was doing a lot of assessment work, coming up with remedial plans for businesses heading for trouble.

Weak businesses showed a number of signs before they actually failed, he said, such as breaching banking covenants or losing key people.