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Liquidations on the rise

2 Minute Read
Written by Zara Mends
26 May 2021

Businesses have been challenged by COVID, but do you really know who’s struggling?

The unique challenges of the ongoing pandemic have impacted New Zealand businesses in many ways yet to be truly seen. NCI are at the coalface speaking with businesses across many industries, and anecdotal feedback post COVID-19 is mixed in that some are performing very well and confidence is high for the remainder of 2021 and into 2022. Others are clearly struggling to adjust and uncertainty will only lead to uncomfortable decisions about what is required to survive.

Corporate insolvencies decreased dramatically in 2020, most likely a result of Government measures in response to COVID-19, including cash stimulus and record low borrowing costs. Domestically, payment trends improved as businesses appeared to have more cash on hand to manage debts.

A recent article in The New Zealand Herald also presented findings that Inland Revenue took a softer approach on tax debt including GST and PAYE obligations. Normally responsible for approximately 50% of liquidation actions, the data shows that this reduced to almost zero over the April – October period. Debt doesn’t simply disappear though and a cash stimulus doesn’t last forever. It also shows IRD actions are now increasing to pre-COVID levels and beyond.

Coupled with supply chain issues and associated cost increases, sustained lack of tourism spending, cash flow impacts from shutdowns, delayed debtor payments, global market volatility and stressors already present prior to COVID, this all presents the ingredients for a perfect storm of liquidity issues and subsequent business failures. At the very least, a correction to account for businesses that would otherwise have failed without Government intervention is expected.

While we don’t have a crystal ball, these are very uncertain times. 2020 demonstrated that even with the best laid plans, things can change quickly and events can be largely out of our control.

The reality is, as a supplier you may not completely understand what pressures your customers are facing until it is too late and the impact of non-payment by a large customer could have a catastrophic impact on your business. You can protect your business

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