July has mirrored the insolvency appointment figures over the last couple of months. The pressures affecting our economy have also remained fairly consistent over the last few months:
- Countries are continuing to fluctuate in and out of COVID-19 lockdowns
- Businesses and consumers are facing ongoing shipping delays and supply shortages
- Consumer demand for goods continues to exceed supply in many areas
- Labour shortages remain an issue
- Inflation remains higher than RBNZ’s targets and the affordability of goods remains an issue
To the end of July, the outlook for growth has continued to look positive:
- Unemployment rates have now fallen to pre-COVID-19 rates.
- The construction industry and the housing market continue to run hot
- Consumer spending remains strong
- The Reserve Bank has halted its Large Scale Asset Purchase programme
At the beginning of this week, most economists were predicting that the OCR would increase in the first time in 7 years. While the messaging continues to be that we should expect the OCR to increase before the end of the year, with a view to moving to an OCR of 2% by the end of 2023, subject to the impact of the latest COVID-19 lockdown. By the end of July, banks had already increased interest rates over the last couple of months, anticipating the August 2021 OCR increase that did not eventuate. We doubt that banks will decrease their mortgage rates before the next OCR update, given the indications that we should still be expecting the OCR to rise.
Data shows that 80% of residential borrowers currently have their mortgage interest rates locked in for 1 year or less, largely as a result of the historically low mortgage rates that have been on offer over the last few years. For new home owners with a 30 year mortgage, a 2% increase in mortgage rates will increase the monthly repayments on a $500,000 loan by around $550 per month. If wages do not increase in line with the cost of living, many could struggle to meet theses higher repayment obligations.
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Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations
The number of company insolvency appointments in July 2021 were:
- Consistent with May and June this year, both by number and type of appointment
- Comparable to July 2020 but there were significantly more court appointments in 2021 (up around 68%)
- Down 20% compared to July 2019
The spike in solvent appointments is likely attributable to companies waiting for their financial statements to be prepared following the end of the 31 March 2021 financial year and other companies having a 30 June or 31 July balance date.
The number of liquidators being appointed by the Court on insolvent liquidations increased from 37% in June 2021 to 44% in July 2021. This trend is not surprising, given the number of liquidation applications that have been advertised in 2021.
Notable insolvency appointments in July:
- Receivers have been appointed over West Coast Brewery (New World Investment New Zealand (in receivership)). The business was listed for sale after one of its key people, a non-resident, could not get into New Zealand due to COVID-19 boarder restrictions. When the receivers were appointed, the business had not yet been sold.
- Many of the companies that were subject to insolvency processes this month operated in the following industries:
o Construction
o Dairy
o Forestry
o Hospitality
Personal Insolvencies - Bankruptcy
The number of personal insolvencies has been fairy consistent month on month since April 2021. Bankruptcies were around 24% higher in July 2021 than in in the previous few months, which correlates to fewer no asset procedures and debt repayment orders in July. This shift might indicate that the there has been more payment default on bigger debts.
As the cost of living continues to increase and more companies fail, we expect that there will be more payment defaults and demands made on guarantors. Personal insolvencies are likely to increase as a result.
Winding Up Applications
The IRD’s enforcement activity has continued but the numbers have eased off slightly since June 2021. It was the petitioning creditor in 66% July’s liquidation application and continues to lead the way by advertising 67% of all creditor applications in the year to date.
In the year to July 2021, 418 winding up proceedings have been advertised and 255 of the named debtors (61%) have ended up in liquidation. The IRD has advertised 161 (63%) court applications. The table below shows the number of companies that have gone into liquidation after their liquidation applications were advertised and how many of those were advertised by the IRD.