Economic recap
April saw the latest inflation figures released for the year to March 2023 showing a drop from the highs seen in the last two periods. The bulk of this drop in inflation however was from international factors while domestic figures remained elevated. Because of this and a number of other reasons the Reserve Bank has continued on their track whacking on a further 50 basis point rise to the OCR. We expect to see a final 25 basis points at the next meeting.
Comparatively Australia has seen their OCR drop, it is expected we will not see this for some time in NZ. The percentage of mortgage lending that remains at fixed rates is considerably higher in NZ, Australia on the other hand has a lot of its mortgage lending at variable rates, because of this a drop or raise in the OCR has a more immediate effect on the consumers purchasing power.
Of note over the last few months, we have seen a steady uptick in coverage of insolvency appointments by various media outlets, with particular focus on tiny home builders and the construction sector. From a numbers view point the constructions sector continues to dominate the total appointments ahead of other sectors as was the case throughout 2022. Commentators have been picking up on this fact with the common narrative becoming that we see more failures in this space before any sign of a recovery begins driven by squeezed margins and falling house prices. House sales continue to be at low volumes with prices maintaining a drop on the 3 month rolling average
Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations
Company insolvency appointments figures have finally come in for March 2023 with a number being late advertised after the end of the financial year, of note we passed the 2019 highs in both March and April (once late advertisers came through) of 2023 and were easily above 2020, 2021 and 2022 levels.
We did see the expected April drop as the result of appointments rushed into the end of the financial year March figures combined with a number of public holidays in the month of April.
As at the time of writing total corporate insolvency figures for the year to date were above the last 3 years but with the slower Jan and Feb 2023 we remain behind the 2019 total levels, thought not by a wide margin.
Solvent liquidations have returned to their standard levels as seen in Jan and Feb, as mentioned last month solvent liquidations typically see a spike in March as professional advisors and shareholders push the appointments through before the end of the financial year. While other liquidation appointments remain at consistent levels, we did see a lift in Voluntary Administrations for the month and Receiverships while higher than usual did fall from the levels seen in March 2023.
Winding Up Applications
Winding Up Applications for April increased on the prior years April figures and continued the upwards trend that has occurred since January 2023. Of note is the lift in IRD applications, typically for Aprils of past years commercial applications have taken the lead, not so from the latest figures. Whether this trend will continue for the remainder of the year is still to be seen given we are in an election year. It may be the case that the IRD is pushing through their appointments in the early part of the year before taking the pressure off as the election looms or they are finally dealing with the numerous derelict debtors they have on their books. Moving forward we are expecting continued growth into the peak months of June / July.
Personal Insolvencies – Bankruptcy, No Asset Procedure and Debt Repayment Orders.
Personal insolvency appointments remain at the lowered levels seen recently. It is likely that it will take some time for the corporate lift in appointments to flow through to personal insolvencies. This lift will likely come from increased interest rates, cost of living increases and guarantees on debts from failed companies.
Election Year Insolvencies
The above graph details the total corporate and personal appointments across all appointment types in this year and the last two election years.
While the corporate appointments are at elevated levels compared to 2017 & 2020 the very low personal insolvency appointment levels for the year to date mean that the total appointments remain below both 2017 and 2020. The corporate appointments will need to remain considerably above the past two election levels to make up for the personal insolvency figures, time will tell if that eventuates.
The difference between 2023 and the last two election years is noticeable in the state of the economy from low inflation and growing economies in the past to the present high inflation and shrinking economy with a cost-of-living crisis. It is still early days for the economic crisis to be completly reflected in insolvency figures which is typically a lagging indicator of the state of the economy.
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