It is no surprise that the construction had the highest number of formal insolvency proceedings out of any sector in Q1 2023, followed by property and real estate, BWA Insolvency founder Bryan Williams says
The latest report from Auckland-based BWA Insolvency shows a steady increase in business failures across the country, with the triple whammy of price increases, supply shortages and decreasing demand affecting a range of different sectors.
In Q1 2023 (Jan 1 – Mar 31), there were 355 formal insolvency proceedings lodged in New Zealand compared to the corresponding period in 2022 when there were 277. That’s an overall increase of 28%.
The data offers a snapshot of the health of the business sector and New Zealand’s significant year-on-year increase in insolvencies is part of a global trend.
Governments worldwide were blind to the inflationary consequences of the free money dished out in Covid. Now the medicine to deal with the issue has become the poison and a 28% increase is consistent with the notion that an economy awash with liquidity while producing nothing camouflaged poor performing fundamentals. Many of these companies that have closed will have had issues for years, so when the tap was turned off, the underlying issues could not be managed.
Construction (90) and property and real estate (39) had the highest number of formal insolvency proceedings by sector in Q1 2023. Construction insolvencies were up 53% year-on-year, an inevitable result given the impact of price increases and reduced demand starting to bite. In the construction sector, you might need the money from Project B to finish off Project A but if Project C doesn’t come in, the whole thing starts to fall over.
Compared to the previous quarter, total insolvencies were down by 22% in Q1 2023, and this is more a timing issue than being reflective of a trend.
Manufacturing had a 61% drop to 14 and business services was down 42% to 31, while the retail sector had one of the highest increases for the quarter, up by 21% to 29.
While the year-on-year increase in insolvencies does not come as a surprise, the economy has not fared as badly as many expected.
While inflation looks to have peaked along with the Reserve Bank’s interest rate hikes and Cyclone Gabrielle and the Auckland floods are likely to provide a boost in the construction sector as there is high demand for repairs and rebuilds, insolvencies are expected to continue to rise this year as companies that have held on by the skin of their teeth through the Covid era now confront the headwinds of anti-inflationary measures.
The companies that will survive are those that have management capability and economic scope to allow them to shed expenses and adapt their business. The more captured the business is by fixed costs, the more difficult it is to rescale.
During tough times, it’s even more important for businesses to keep evaluating their operations.
Often failure can be avoided if directors constantly review and refine the fundamentals of their business. You’ve got to cut your coat to suit your cloth and often a good way of designing that garment is to get help as soon as seems it is required.
BWA Insolvency has been tracking the data on liquidations, receiverships and voluntary administrations since 2012. The Registrar of Companies Office records the filings of companies that have gone into a formal state of insolvency. BWA then does a deeper investigation on each company and categorises them to show trends across different industries and regions.
