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 best return for the secured creditor (usually the bank). Business survival may be an outcome. Banks may agree to a VA proceeding to avoid the negative publicity from appointing a Receiver or to protect the value of the business goodwill achieved from the stay in an Administration.

A company goes into receivership when a receiver is appointed by a secured creditor who holds security over some or all of the company's assets. The receiver's primary role is to collect and sell sufficient of the company's charged assets to repay the debt owed to the secured creditor. Sometimes there is nothing much left and liquidation can also follow.

A company compromise under Part 14 of the Companies Act 1993 is a useful method without (in theory) having to go to Court. There is however no automatic moratorium (like with a VA) so sometimes you go to Court anyway. A compromise requires the identification of classes of creditors and 75% approval by class. There is often no outside independent manager involved. The compromise is the likely least expensive option but it requires approval to essentially be assured in advance. It works well for smaller companies with lesser creditors involved.

A Voluntary Administration is advanced where the company is cash flow insolvent or likely to become insolvent. No Court application is required. The Board of directors can appoint an Administrator. If there is a winding up application (by a creditor) on foot, the Court will likely adjourn the winding up application if the Court is satisfied that it is in the interests of the creditors (Section 239ABV, Companies Act 1993).  A business must be truly viable to be successfully rehabilitated. The appointment of an administrator for any other reason apart from rehabilitation is unlikely to gain the requisite support.

Voluntary administration is designed to resolve the company's future direction. The voluntary administrator takes full control of the company to try to work out a way to save either the company or the company's business.

The aim is to administer the affairs of the company in a way that results in a better return to creditors than they would have received if the company had instead been placed straight into liquidation.

A mechanism for achieving these aims is a Deed of Company Arrangement. VA however suits certain companies and can be a costly exercise.  A company compromise can achieve similar results.

Liquidation versus Administration

Liquidation is not a rescue procedure. It is usually a terminal procedure. Liquidators typically trade only for a short term for the purposes of the liquidation. The purpose of liquidation is to realise and distribute assets, not business survival.  Some companies however advance liquidation for the purpose of restructuring and to purchase back part of the business from the liquidator (at market value). Some companies advance liquidation with a known purchaser lined up to purchase the business in a clean structure. The consideration attributed is often pre approved by the secured creditors in these cases.  A liquidator can only trade on for limited purpose of winding up. An administrator on the other hand has wide powers including the power to borrow. Some contracts will have termination clauses on liquidation but not on Administration. Both options have their advantages.

The best option is best discussed and well considered before advancing. Contact our team for advice on the options available if your business is in need of rescue, restructure or an orderly termination.

 If any of these options may help you bring an end to a messy situation or to survive and thrive, contact one of our Licensed Insolvency Practitioners or email us at This email address is being protected from spambots. You need JavaScript enabled to view it. for some advice.

 DISCLAIMER
This article is intended to provide general information and should not be construed as advice of any kind. Parties who require clarification on issues raised in this article should take their own advice

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 consent numbers at elevated levels. The vibe from people on the ground however is that 2023 is looking like a slower year moving forward, no doubt a number of the issued consents may lapse incomplete.

ANZ business confidence can be detailed quite simply with their own blurb from their website “Business confidence fell 14 points in November to -57, while expected own activity fell 11 points to -14, only 8 points shy of 2009 lows. Activity indicators fell. Residential construction intentions tanked. Employment intentions were negative for the first time since Oct 2020. Inflation pressures remain intense, though pricing intentions eased.” So generally, the feeling is 2023 is looking rough for businesses.

Of note from our own purely unscientific observations we have seen an increase in the level of enquiries coming into the office over the last few months and an uplift in both solvent and insolvent jobs. What this has been driven by is difficult to say but likely the above factors affecting businesses along with a recent increase in IRD collections action and the cut back in government businesses subsidies seen over the last two years since the commencement of Covid lockdowns.

Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations

The elevated levels of appointments of the 3 prior months continued into October and November 2022.
Of interest November reached over 200 appointments for the first time in three years, Sept 2019 – 206 being the last time.

The breakdown of total appointments saw a constant levels of solvent appointments, court appointments and receiverships, the jump was seen in insolvent shareholder appointments jumping by almost 50% of earlier months from 67 in September, 83 in October to 115 in November.

The media has taken a recent interest in insolvency appointments in particular tiny home builders and Voluntary Administrations appear to be the flavour of the month. Where administrators have been appointed the recent trend of combining the appointment with a receivership to tie up creditors powers continues by a few practitioners.

From a yearly point of view total appointment figures for 2022 after 11 months are above the full 2021 calendar year. At this point it appears likely total appointments will exceed 2020 appointments before the year is out but are unlikely to reach 2019 levels as December is typically a slower month overall with the Christmas break and courts shutting.

Winding Up Applications

The gradual drop often seen over the 2nd half of each year changed in both October and continued on further in November 2022. This was a higher monthly total winding up applications than any other month in the last two years.

While corporate applications have risen, IRD applications continue to do the bulk of the heavy lifting in total applications. IRD will have a back log of derelict debtors from the last two years and are only now beginning to play catchup. How far this continues into 2023 as an election year will be a question yet to be determined.

Personal Insolvencies – Bankruptcy, No Asset Procedure and Debt Repayment Orders.

While there has been a jump in corporate appointments this has not been reflected in personal insolvency appointments. The numbers continue to track down to lower levels than prior years.

If you want to have a chat about any points raised or an issue you may have you can call on 0800 30 30 34 or email This email address is being protected from spambots. You need JavaScript enabled to view it.