In our 42nd Insolvency by the Numbers, we look at our data set for May 2024. We review how the month has tracked compared to prior months and years. In the last month the Reserve Bank has continued with no change to the OCR and indicated not to expect any reductions until 2025. We are now beginning to see a further tightening being covered in certain sectors particularly construction where new work has become scarce and those that are not busy finishing off existing projects are beginning to look to the renovation space. The government has released their latest budget showing cuts to a number of ministry’s and projects that are not deemed essential, there has also been some tax…

As we navigate the choppy waters of economic downturns, the prospect of insolvency looms larger for many businesses. In these challenging times, it is imperative for directors to be acutely aware of insolvency risks and to implement robust risk management strategies to safeguard their companies. The recent economic climate has accentuated the need for prudent financial oversight and strategic decision-making, making it more important than ever to ensure that directors are fulfilling their duties diligently. Understanding Insolvency Risk Insolvency occurs when a company is unable to meet its financial obligations as they fall due or when its liabilities exceed its assets. The Companies Act 1993 provides a solvency test that directors must adhere to, which includes both a liquidity test…

In the current economic climate, businesses are being advised to keep a close eye on costs. Certain sectors are experiencing heightened financial distress, posing significant risks to lenders, customers, and suppliers. Understanding these risks and taking appropriate precautions can mitigate potential losses and ensure more stable business relationships. Below, we outline the top 10 sectors in critical financial distress and provide strategies to protect your interests. Top 10 Sectors Facing Financial Distress Retail: The retail sector is grappling with reduced consumer spending, a big drop in consumer confidence, people working from home affecting foot traffic, the rise in crime / safety issues and high operational costs. E-commerce has also intensified competition, putting additional strain on traditional retailers. The recent announcement…

In our 41st Insolvency by the Numbers, we look at our data set for April 2024. We review how the month has tracked compared to prior months and years. In the last month we have seen the latest release of unemployment data showing a rise to 4.3% for the March 2024 quarter, with expectation that it may continue to increase. We have seen a decrease in inflation driven largely by tradeable inflation, meanwhile the non-tradeable inflation continues to remain high, showing we still have some work to do to get over inflation in NZ. The Reserve Bank has continued with no change to the OCR during the month with the next announcement due in May 2024 hoping to shed some…

Company liquidation can have significant ramifications not only for the business itself but also for its directors, particularly concerning their credit ratings and overall financial standing. When a company faces insolvency and enters into liquidation, directors may find themselves confronted with various challenges and consequences that extend beyond the dissolution of the company. In this article, we explore the impact of company liquidation on directors' credit ratings, the broader implications of association with an insolvent company, and strategies directors can employ to mitigate the effects. Impact on Directors' Credit Ratings: One of the immediate concerns for directors following company liquidation is the potential impact on their personal credit ratings. While company liquidation itself does not directly affect directors' credit scores…

Many companies find themselves facing financial distress and unable to sustain operations. Voluntary liquidation is a viable option for directors and shareholders to wind up the affairs of the company in an orderly manner. It is imperative to understand the process and implications in the legal landscape, governed primarily by the Companies Act 1993 and the Personal Property Securities Act 1999. Understanding Voluntary Liquidation:Voluntary liquidation is a process initiated by the directors and shareholders of a company when it is deemed insolvent or unable to meet its financial obligations. This process involves the appointment of a liquidator, whose primary role is to realize the company's assets, distribute proceeds to creditors, and ultimately dissolve the company.Steps of Voluntary Liquidation:1. Appointment of…

In our 40th Insolvency by the Numbers, we look at our data set for March 2024. We review at how the month has tracked compared to prior months and years. Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations March 2024 insolvency appointments continue the trend seen last month being notably up in March 2023. Total appointments for the month were 291, this is 26% higher than 2023 and almost double each of the years back to 2019. March 2024 is 144 appointments above the long-term average of 147 monthly appointments. 2024 continues showing strong appointment figures exceeding the last 7 years for the cumulative total of the 3 months to date. As predicted March figures were up and we expect…

In our 39th Insolvency by the Numbers, we look at our data set for February 2024. We review at how the month has tracked compared to prior months and years. Notable economic events for the month include the Reserve Bank keeping the Official Cash Rate level at 5.5 percent with no change to when we may begin seeing a drop in the rate in 2025. Economists are of the opinion that drops will be sooner than this in the later half of 2024. The coalition government has come to the end of its first 100 days, having enacted the bulk of their 49 points they set out to implement. While the bulk of these were undoing legislation and changes made…

Understanding the options available for struggling companies is important for all company directors in businesses facing financial challenges. The choice between receivership, voluntary administration, a company compromise or liquidation depends on the specific circumstances and the desired outcome for the company's stakeholders. Legal and professional advice is recommended to navigate these processes effectively.What are the options? Please refer to our other articles for more detailed explanation of each option.1. Receivership:• Definition: Receivership is initiated when a secured creditor appoints a receiver to manage the secured assets of a company. It's important to note that a company can simultaneously be in receivership and undergo liquidation or voluntary administration.• Process: The appointed receiver takes control of and deals with the assets that…

What is a Statutory Demand and When is it Used for Debt Collection? A Statutory Demand serves as a formal court notice compelling a debtor company to settle an outstanding debt owed to a creditor, marking the initial step in the legal process of initiating the "winding up" of an insolvent company in accordance with Section 289 of the Companies Act 1993. Essentially, a Statutory Demand functions as a litmus test for a Debtor Company, evaluating its financial viability by determining its ability to meet its obligations and settle debts promptly. It should however only be used as a debt collection tool if there is no dispute. A disputed debt has a different process to follow. A statutory demand should…

In our 38th Insolvency by the Numbers, we look at our data set for the year end 2023 in review along with January 2024. We look at how the year has tracked compared to prior years and what to we can expect in 2024, followed by a look at how January 2024 has compared to the last few years. The latest data release shows that inflation has fallen however the portion of it generated by non-tradeable inflation figures remains high. Economists are predicting that it is unlikely that we will see an official cash rate drop till the later part of the year with come commentators still expecting the first drop in 2025. The property market however has now stabilised…

Many NZ companies are currently affected by cash flow issues and are facing insolvency. To be insolvent means one of two things: Debts can’t be paid when they’re due. Total debt is more than the value of all assets. The Commissioner of Inland Revenue ("CIR") will take debt recovery action where debts are in arrears. The CIR is able to issue a statutory demand as a step necessary to advance a proceeding against a company. Ignorance Isn't Bliss It is recommended for any business struggling to meet tax arrears that negotiations are entered into promptly to avoid a potential winding up proceeding. Taxpayers are required to pay their tax in full and on time. Failure to do so leads to…