“There’s no doubt at all that we are in a recessionary type of environment, and I think it’s going to get worse before it gets better,” Bryan Williams of BWA Insolvency said.
“But I don’t think getting better will be all that far away. I think that we’ll see some green shoots later on in the year.”
However, Williams said this doesn’t necessarily mean insolvency practitioners won’t be busy.
“We lag quite significantly behind the economy. We are now very, very busy… these are companies that should have gone into liquidation two and three years ago,” he said.
Many of those were companies that were shielded by Covid-related support measures.
Williams said the IRD had taken a gentle approach to companies that were in default during Covid, but now that was changing.
“I think that there’s a sense of impatience now from the Commissioner of the Inland Revenue,” he said.
“While they’ve been very forgiving across the Covid years and even after that, I think that patience has worn thin now, and people are confronted with some fairly chunky obligations for unpaid taxes and the penalties in interest that accrue on top of that.
“It represents a fairly significant hurdle for companies to overcome.
“I think that’s probably fairly commonplace in all of the files that we’re appointed to.”
Figures supplied by the IRD show in the fiscal year ending June 30, 2022, the Commissioner of Inland Revenue filed for 357 liquidation proceedings and was granted 179.
A year later, that figure ramped up to 764 court applications to liquidate companies, with 356 being granted.
As of March 15 this year, the IRD had filed liquidation proceedings against 472 companies, with 290 being granted.
Inland Revenue customer segment leader Richard Philp said it was doing more proactive debt work following the pandemic years.
“The more we do, the more likely we will see higher levels of bankruptcy and liquidations because some businesses are simply not viable and are unable to meet current liabilities, plus deal with historical liabilities,” Philp said.
“For those who choose not to pay or cannot pay, Inland Revenue uses the bankruptcy and liquidation process as a last resort to physically stop businesses from further trading by asking the High Court of New Zealand to appoint a liquidator or the Official Assignee to take control of the business and wind it down.”
Philp said as of the end of February 2024, 88.9 per cent of tax payments (95.7 per cent of the value) made by customers were on time.
The construction sector has particularly been under huge stress lately amid a sharp drop in consent applications, rising costs and high interest rates.
Selah Homes, Compass Homes (Franklin) and Scarbro Construction are just a few companies that have been put into liquidation in the last 13 months.
Popular cafe chain Wishbone closed up last August owing more than $6.8 million - $462,640.16 of which was to the IRD - while restaurant, bar and nightclub operation Roxy & Everybody’s went into liquidation in February owing $568,178.39 to the IRD.
Silvermoon Jewellers owed more than $1m to the IRD when it went into voluntary liquidation in March, as did labour hire company Buildhub, which collapsed in February.
Is voluntary administration a better option?
“The statistical evidence shows that the option for voluntary administrations is abysmal compared with liquidations,” Williams said.
In 2023 there were just 43 voluntary administrations recorded by the Companies Office, compared to 1838 liquidations.
“You shouldn’t be chasing rainbows, of course, but voluntary administration puts some sense of hope around restructuring the affairs of the company.”
He said administrators have the skills and expertise “to find their way out of the crocodile swamp”.
“At the end of the day, the company is insolvent and is unlikely to survive.
“The intention of voluntary administration is to see whether or not the company or its business can continue in existence.”
Asked why more companies don’t take up the option of voluntary administration, Williams said: “Getting a director, where there are resources within a business environment, to hand over the keys to an independent person that they only just met last week is a big ask.”
“While there are resources, the directors are going to choose their own path.
“Very recently, I was called by the wife shareholder partner of a business who was desperate to have an independent person involved, and the husband portion of that business mix said, ‘Well, that will never happen’.
“There is frequently [a view] that, ‘I’m not going to fail. This is for me to fix’.”
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.
