NZ’s "zombie" companies in trouble – New Zealand Herald

Leading insolvency company predicts 50 per cent increase in insolvencies soon.

In February and March, a flood of corporate insolvencies in New Zealand will soar by about 50 per cent over the same period last year, according to a leading insolvency services practitioner.

Bryan Williams, of BWA Insolvency, says the "flood" this year will occur because of a delayed reaction to the ending of government subsidies to help businesses weather the Covid-19 storm aid that began to be turned off in September.

Official figures have recently showed a decrease in insolvency with corporate insolvencies down by 23 per cent in the second quarter of 2020 and personal insolvencies down by 34 per cent.

"But it's an artificial scenario, as many businesses were kept afloat by that government assistance," says Williams. "There is always some latency to the cause of insolvency as reserves are eaten up or the inevitable being delayed by promises of better trading, like Christmas."

"Coming back from holidays to the cold reality that the issues affecting their business pre-Covid and pre-Christmas are still there, becomes a defining moment especially when confronting the need to meet December and perhaps November accounts as well as working out how to survive. This becomes crunch time.

"Then they will turn to us and we are only ever appointed when they think they have exhausted all options. That's why there will be a flood in February and March."

Williams says there are two broad categories of companies that could be caught up in insolvency issues.

The first are those who are feeling the consequences of Covid-19 they were trading well before but the pandemic has hit them hard. A good opportunity exists for those companies to change direction or pivot to new opportunities but some help may be needed to make that transition. Voluntary administration can certainly help this transition, Williams says.

"The other category contains those who may perish as government help is withdrawn. They are the ones with pre-existing conditions that did not become fatal because subsidies plastered over the issues like Band-Aids. Now they are in a bit of a no man's land, unable to either give up or revive the business."

Such companies are in a "zombie state", he says, desperately trying to deal with the issues now before them again. Williams says voluntary administration (VA) has a very important role to play in these circumstances to ensure everyone's rights are protected while working through the best way forward.

"VA is the ideal formal state of insolvency to polish the gem of the business and return it to viability, as well as ensuring everyone gets what they should and no one gets what they shouldn't."

BWA's policy is one of absolute integration: "We go in and work with the directors of the company. They have to be in the game and they have to be committed to the plan as Sir James Wattie always used to say, the only place wealth comes before 'work' is in the dictionary."

BWA works closely with the directors in voluntary administration to help overcome the issues facing the business and work with them to find and execute new strategic directions.

"We don't take over the operation but it's a bit like the bacon and egg breakfast the hen was dedicated but the pig was committed.

"That degree of absolute integration is not the norm in voluntary administration," says Williams. "The reality is that VA is an intervention and designed to give directors a fresh start and that includes providing assistance in this rehabilitative process not just turning up now and again to offer sage advice."

Williams says the crunch time will also be made worse by the impact on New Zealand of the pandemic in the UK, European and US businesses: "These countries are pillars of the world economy and they are among the big victims of Covid-19.

"It is inevitable their struggles will soon start to affect companies in New Zealand that rely on exports. We are a country of business people who strive to reach out to overseas markets but that is difficult at the moment and likely to be so for much of this year."

For more information: Visit http://www.bwainsolvency.co.nz

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NZ's "zombie" companies in trouble - New Zealand Herald