Fewer companies were going into liquidation. Photo / Getty Images
Fewer companies are going into liquidation and local insolvency specialists say it's because more businesses were being encouraged to sort out their tax bills instead of going bust.
Although numbers had only slightly dropped since the March Covid-19 lockdown one liquidator says the tide may be turning as business had started to pick up.
Some companies on Bay liquidators books were pouring money from their own pockets into their businesses and experts warned the sooner business owners sought help the better chance they had of saving their business.
Meanwhile, demand from people looking to buy businesses in the Bay of Plenty was outstripping supply.
According to the Ministry of Business, Innovation and Employment (MBIE) there were 50 Tauranga businesses and 15 in Rotorua put into liquidation since March 25 last year. Only one Rotorua business went into receivership.
That compared to 53 Tauranga businesses in liquidation and two in receivership - and 10 Rotorua businesses in liquidation and 13 in receivership - during the year to April 30 2020.
Tauranga-based liquidator Tom Rodewald said business had been "very patchy" but had started to pick up.
January and February were spent finishing up jobs from the previous year, March "we couldn't keep up", April had been quiet and May was quiet to start with but had since ramped up, he said.
"It seems that there is a few receiverships happening this week and last week. It may be a sign things are turning."
Rodewald, who worked with companies across the Bay of Plenty and New Zealand, said this month could end up similar to last May's rush if inquiries kept coming in.
He had about 20 live liquidations and receiverships on his books which was not uncommon.
"Hopefully the IRD has started to take a hard line of those that are months in arrears in GST and P.A.Y.E.
"The country is still awash with money from the Government. The kiwifruit and dairy prices are high but business are struggling to find staff, which is the biggest complaint we get."
BDO Tauranga Ltd director Paul Manning said there has been a significant increase in court applications to liquidate companies since May 2020.
Applicants were being made by company creditors, particularly, the Inland Revenue Department (IRD) rather than business owners voluntarily putting their companies into liquidation, he said.
"The IRD has become a lot more active in pursuing companies with large debt outstanding."
Manning said many businesses had seen a surge in demand post-lockdown making it difficult to gauge a "new normal" which could ease once the rollout of the vaccination began.
"Key constraints for many business owners in various industries are supply chain issues and labour shortages.
"It may be difficult for businesses to quantify [or indeed fully understand] the full effects of these key constraints."
Access to debt finance may also be an issue going forward for some businesses and the sooner business owners engage with a specialist, the greater the chance of success, he said.
"Business owners often seek turnaround advice six to 12 months later than needed, by which time the opportunity for saving the business has diminished considerably."
Local liquidator David Thomas said post-lockdown the number of liquidations had dropped.
His business Don't Be Limited had about 30 insolvencies on his books from across Auckland, Waikato and the Bay of Plenty - about a third of them were from the Bay.
Many were companies that had used all their credit up from creditors and "there was nothing left".
"The biggest catalyst for most liquidations is tax debt. We are starting to see the IRD chase people now."
Thomas said many business people had put the capital gains made on their properties into their businesses hoping it would pull them out of debt, which was not a good idea.
His advice was if the business is not making money it was time to move on.
"Anyone who tries to keep your business running by putting your own money into it it's time to stop. All you're doing is digging yourself into a hole.
"A lot of people treat their business like a child but it's a job."
An IRD spokesperson said their priority, particularly in the Covid environment, had been working closely with businesses to try to help "get their tax issues right and to help where we can to ease pressures on them".
"Measures such as liquidation are always a last resort. We will continue to make tax as clear and simple for businesses as we possibly can.
The ABC Business Sales small and medium-sized enterprises market intelligence report for Quarter 1 2021 showed a drop in new business listings in the Waikato/Bay of Plenty region.
New listings in the area dropped to 153 in the year to March 2021 from 200 in the previous year.
But sales volumes were on par with last year's figures - about 100 businesses in the Waikato/Bay of Plenty were sold in the year to March 2021.
ABC Business Sales managing director Chris Small said there were fewer businesses coming to the market.
"Less people are wanting to sell their business but more people want to buy a business. That dynamic causes prices to go up.
"The issue we have is we don't have enough businesses to satisfy demand."
Small put the business demand down to Kiwis having the "No 8 wire" mentality and wanting to give buying a business a go.
Small said the reason businesses were selling had "very little" to do with companies going into liquidation.
"Those figures are historically low. Companies are doing a lot better than we all expected."
Business owners were instead selling up mostly due to retirement age, health, marital disputes and a change of direction post-Covid-19 lockdown, he said.
Liquidation is the process of bringing a company to its end and the remaining assets are used to pay creditors and shareholders.
Voluntary liquidation happens when members of a business want operations to end or the business can't pay its debts and in order to do so, it must go into liquidation.
Liquidation is the only way to properly wind up a company and terminate it. If you only sell its assets and pay the debts, the company structure is still in place and therefore still exists.
Source: Don't Be Limited
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