New Zealand business failures reach decade high as Inland Revenue drives liquidation surge

HouGarden New Zealand, 14 October — Insolvency practitioner Keaton Pronk of McDonald Vague, a New Zealand-based insolvency firm, said 1,072 winding-up applications were advertised in the nine months to the end of September 2024. That figure is higher than any full-year total recorded between 2017 and 2023, and more than the combined total of the previous two years. In September alone, 138 such applications were advertised.

A winding-up application is filed when a business cannot pay its debts. If the company cannot reach an agreement with creditors, those creditors may apply to the High Court to place it into liquidation.

Inland Revenue is driving much of the activity. Pronk said the tax authority was responsible for 80 percent of winding-up applications in September. The Employers and Manufacturers Association (EMA), the main business lobby group for northern New Zealand, confirmed the pattern. EMA head of advocacy and strategy Alan McDonald said that while times were broadly tough for small businesses, most insolvencies were being triggered by Inland Revenue enforcement. A softer approach to tax collection during the Covid years, he said, had allowed some businesses to accumulate tax debt to a point where recovery was no longer possible.

For business owners with outstanding tax obligations, the practical implication is direct: Inland Revenue has returned to active debt recovery, and accumulated arrears that were tolerated during the pandemic are now being pursued through the courts.

Corporate insolvency appointments — a broader measure that includes liquidations, receiverships and other formal processes — reached 2,411 in the nine months to September, according to McDonald Vague. Pronk said that figure put 2024 on track for the highest annual total since the global financial crisis. "Despite ongoing discussion around business restructuring and rescue, New Zealand companies facing financial distress are still far more likely to end up in liquidation than attempt a formal turnaround process," he said.

Separately, credit data company Centrix recorded 3,105 liquidations in the year to August 2024, a figure 14 percent higher than the same period a year earlier. The Centrix data covers a different time window and uses a different methodology from the McDonald Vague figures and should not be read as the same measure.

Pronk said he expected little to change for the remainder of 2024. He said two further cash rate increases — widely anticipated at the time but not yet confirmed policy — would, if they occurred, keep the pressure on businesses.

Simplicity chief economist Shamubeel Eaqub placed the figures in longer-term context. He noted the insolvency rate of 4.1 per 1,000 registered companies, while elevated, remained below the 6.6 per 1,000 recorded in 2009 during the global financial crisis. Court-ordered liquidations reached 1,047 in the nine months to September, up sharply from 280 in all of 2022 and the highest since 2009.

Eaqub also noted that 61,648 companies were incorporated in the nine months to September, while 52,168 were removed, producing net growth of 9,480 — the lowest net increase since 2016. He highlighted one detail about the businesses failing: the median age of insolvent companies was 7.2 years, compared with six years in 2019 and 5.3 years in an earlier period. "It's not just newbies or Covid," he said, indicating that established businesses are being caught in the current downturn.

Eaqub said Centrix data showing business credit faults down 1 percent year-on-year on a rolling 12-month basis could be an early signal that conditions would eventually improve, though he stopped short of predicting a near-term turnaround.

McDonald of the EMA said the underlying conditions for improvement existed but would take time to materialise. "Smaller businesses who've been hanging on for a long time are doing it hard and are still doing it tough," he said. "Most of the people we're talking to are saying 'we can see it coming, it's getting a little easier, maybe we've hung on, but it's still tough'. They can sort of see it on the horizon but, man, it's still tough." He also noted that some EMA members were cutting back on memberships because of cost pressures, while others were closing entirely.

The corporate insolvency picture contrasts with trends in personal insolvency, which represents a separate and distinct measure. There were 947 personal insolvencies recorded in the first nine months of 2024 — more than in the equivalent periods of the two preceding years, but well below the levels seen between 2018 and 2021, when the annual figure regularly exceeded 1,500 and reached as high as 3,000 in a single year. The relative stability on the personal side does not offset the deterioration at the corporate level.