Running a business successfully is a complex and challenging task that requires careful planning, strategic thinking, and effective management. Sometimes it can feel like you're barely keeping your head above water. One of the key challenges that business owners and managers face is ensuring that the company remains financially stable and solvent over the long term. Unfortunately, many businesses fail to recognize the warning signs of financial trouble until it's too late. One common mistake that many businesses make is overlooking warning signs or failing to address them in a timely and effective manner. For example, a company may continue to invest in an unprofitable product line or market, or delay making necessary cost-cutting measures until it's too late. In…

Economic recap Figures released in March saw the New Zealand economy gross domestic product (GDP) fall 0.6% in the last three months of 2022, after a 1.7% rise in the September 2022 quarter. The drop at the close of the year was larger than predicted by many of New Zealand banks and a number of economists. Annually, GDP is up 2.4% year on year, unemployment remains low, at 3.3%. Two large banks in the United States with significant exposure to the technology sector failed, while another entered liquidation under financial distress. These banks were Silvergate Bank, Silicon Valley Bank, and Signature Bank. Outside the United States, Credit Suisse joined the above 3 banks finding themselves in difficulty, the difference here…

Legitimate business risk is the potential risk that a business faces in pursuing its legitimate objectives. When trading a company that has cash flow problems in New Zealand, there are several legitimate business risks that investors or directors need to consider. These risks include: 1. Credit Risk: If a company is experiencing cash flow problems, it may be at risk of defaulting on its debt obligations, which could harm its credit rating and affect its ability to obtain financing in the future. 2. Operational Risk: Cash flow problems can also affect a company's ability to operate effectively, leading to disruptions in production, delivery, or customer service. This can harm the company's reputation and lead to loss of market share. 3.…

Under New Zealand law, a director can be held liable for trading recklessly or insolvently if they allow the company to continue trading while it is insolvent or likely to become insolvent, and their actions cause a loss to the company's creditors. The determinants for finding a director liable for trading recklessly or insolvently include: Awareness of Insolvency: A director may be held liable if they continue to trade while the company is insolvent or if they become aware or should have been aware of the company's insolvency and failed to take appropriate action to address it. Breach of Directors' Duties: Directors have a duty to act in the best interests of the company, exercise due care and diligence, and…

Economic recap February saw another lift in the Official Cash Rate by 50 basis points, with a further 75 basis points expected to be added this year. The language from the reserve bank indicated that they had not seen the expected signs in inflation pull back and were continuing on their chosen path from 2022 to get inflation under control as quickly as possible. The extreme weather events experienced in January continued into February with considerable damage to parts of the North Island. While the immediate effects have been considerable in certain areas the long term effects and costs will have wide reaching repercussions as additional spend will be necessary and likely increase demand on limited supplies and pressure on…

If you have sold your business or business assets and ceased trading and you are considering liquidating your solvent company, there are a number of benefits to completing the process before the end of the financial year. A solvent liquidation, is a process by which a company is wound up and its assets are distributed to its shareholders because it is no longer needed or wanted. The benefits of doing so include: Tax advantagesBy completing your solvent liquidation before the end of the financial year, you can take advantage of tax benefits that are only available to companies that are wound up before the end of the financial year. In particular, you may be able to claim a tax deduction…

If you're running a struggling business, you may feel overwhelmed and unsure of what steps to take next. It's a tough situation, but it's not uncommon, and there are options available to help you get out of it. The first step is to assess the situation and identify the root causes of your business's struggles. This may involve reviewing your financial statements, identifying your cash flow issues, and analyzing your operations to pinpoint areas of inefficiency or waste. Once you have a clear understanding of the problems, you can begin to develop a plan to address them. One option for getting out of a struggling business is to consider restructuring. This may involve renegotiating your debts with creditors, selling assets,…

If your business is struggling with debt and financial difficulties, you may be considering liquidation as a way to address your problems. However, liquidation is not always the best option for every business. Before making any decisions, it's important to consider all the available options and seek professional advice from experienced insolvency practitioners like McDonald Vague. Liquidation is a process by which a company's assets are sold to pay off debts to creditors, and the company is then dissolved. While it may seem like a quick solution to financial problems, it can have serious consequences for the company's directors, shareholders, and employees. It's important to understand the potential implications of liquidation before deciding whether it's the best option for your…

Economic recap Inflation has remained constant in the final quarter of 2022 at 7.2 the same as at the end of the third quarter in 2022, it is still down from the 7.3 high point seen during 2022. While economists and the Reserve Bank were hoping for a drop this factor will be weighing on the Reserve Banks mind in its ongoing fight against getting inflation back to its 1%- 3% target band. While other developed countries across the world begin to see inflation coming under control we are not yet there in New Zealand. Coupled with the elevated inflation we have business confidence at all-time lows as seen in surveys run at the end of 2022 and through January…

Dealing with insolvency is a stressful process. As a director, you have to worry about risk on multiple fronts: corporate survivability, personal liability and how to satisfy the needs of creditors. But perhaps above all, it is critical to ensure your company does not continue to trade if it becomes insolvent. RESPONSIBILITIES OF THE DIRECTOR DURING INSOLVENCY As director, you must ensure that you and your company uphold the provisions and obligations of the Companies Act 1993. The duty imposed by Section 135 of the Act is owed by the directors to the company. The legislation states that minimum requirements for a director to do so adequately include: Making decisions in good faith and for the best interests of the…

OPTIONS FOR STRUGGLING NZ BUSINESSES If your business is at the point of spiralling out of control, speak to your professional advisors who may be able to help your business. The pressures now on business are high and it is difficult. There are options for struggling businesses to consider whether that be to restructure or to bring the business to its end. There are three rescue procedures in NZ, the compromise (Part 14), the Court approved scheme of arrangement (Part 15) – an option seldom used, and Voluntary Administration (Part 15A). The Rescue Procedures Receivership can be a rescue procedure. It can result in the rescue of viable parts/businesses but the primary duty of a Receiver is to get the…

Economic recap The OCR continues its march on an upwards trajectory, with the latest Reserve Bank rise of 75 basis points to 4.25 and a supporting narrative outlining future raises in 2023 of up to 125 basis points to bring the OCR to 5.0 and over. From an economic perspective there continue to be a number of factors affecting businesses. The labour crunch remains with immigration not making up for the continued brain drain as people leave on OE’s or delayed travel plans. Shipping and product delays continue with China’s lockdowns as they struggle to grapple with a continued covid outbreak. On the construction front while councils continue to catch up on the backlog of buildings consents keeping the monthly…