The number of companies going broke has increased in recent months as creditors take a harsh view, but they are down on a year ago amid signs of economic recovery.
The latest report from BWA Insolvency for the September quarter showed a 5% rise in the number of insolvencies to 777 on the previous quarter, but down 6% on the same period in 2024.
BWA Insolvency principal Bryan Williams said the number of insolvencies reflected an economic “game of two halves”.
“On one side, you’ve got irrepressible forward-looking indicators-share prices rising, real estate agents bouncing back, building permits up, and even ready-mix concrete demand forecasts improving.”
“But then there’s the other half: companies weighed down by cost inflation, credit tightening, and enforcement for unpaid taxes.”
“For those burdened with debt that earnings can’t service, the future is bleak,” Williams said.
Creditors opt for healthy destruction
There was a clear hardening of attitudes among creditors, which he called healthy destruction, Williams said.
“Creditors are accelerating the exit of firms that can’t recover. It’s a harsh reality, but it’s shaping the market.”
There was still a reasonable number of companies to fail even as economic conditions improved, he said.
“There is still alI those companies hanging on by the end of their fingers, and that’s quite a pipeline, I imagine it will be well into the third quarter of next year before we see a downturn in actual liquidations.”
Construction remained the industry with the most insolvencies, 192 in the quarter, a slight reduction on the previous and a year ago.
“Although it appears over represented in insolvency data, its failings are proportionally low compared to its economic weight, especially when you compare it to sectors like hospitality, which runs a close second in insolvency stakes but contributes far less to GDP.”
The sector with the biggest insolvency increase was transport and delivery, followed by manufacturing, and food and beverage which were being squeezed variously by rising costs and soft demand, issues which were structural and not cyclical.
The economic signs were looking more positive overall, Williams said.
However, he lamented that administration, a ring fencing of a company to try to find a solution to its financial troubles, was barely used in this country.
rnz.co.nz
