Hospitality insolvencies expected

THE hospitality industry is expected to be the hardest hit by insolvencies over the coming year.

A survey of restructuring and insolvency experts has found 93% expect insolvency appointments to rise over the next one to two years and 83% expect a rise in the next 12 months.

Topping the list of industries where they expected to see a rise was hospitality; 90% of those surveyed predicted a rise in that sector over the next year.

That was followed closed by tourism (88%), retail (82%), and accommodation (83%).

Restructuring Insolvency and Turnaround Association chairman John Fisk said the impact of Covid19 had not started to come through into liquidations at the moment.

‘‘A lot of the businesses going through a liquidation now were experiencing difficulties before Covid19.’’

Based on workload expectations, company liquidations were likely to rise.

Some of that would be a bounce back to dealing with the companies that had been able to survive through support, even though they probably should not have, he said.

‘‘There is an element of catchup.

‘‘We haven’t seen the number of collapses you would expect but I think the survey is showing there is an expectation that they are coming down the pipeline.’’

He pointed to the debt many had taken on to get through the pandemic and lockdown periods.

More than 100,000 businesses have borrowed more than $1.7 billion through the small business loan scheme operated by the Inland Revenue Department.

Mr Fisk also pointed to the IRD’s annual report, which showed 177,000 taxpayers had entered into instalment arrangements to pay overdue tax back.

‘‘There is a lot of debt still being created out there and fundamentally debt has to be repaid and it doesn’t matter what the interest rate is necessarily.

‘‘At some stage businesses will either have to be profitable enough to pay the debt back or they won’t be able to.’’

The sectors facing higher expectations of insolvency are no surprise: hospitality, tourism and retail have all been exposed to lockdowns and the country being shut to international tourists. Mr Fisk said hospitality was likely to hurt significantly because often those businesses did not have a lot of capital.

‘‘It doesn’t take a lot to set a restaurant up, so they are vulnerable. But also every time there is a change in alert levels it has an impact on their business.’’

The rise in working from home arrangements also meant a lot of the central city cafes and bars were just not getting the same foot traffic they used to, he said.

The transtasman bubble opens from Monday, but Mr Fisk said the jury was still out on whether that would stop some businesses from going to the wall.

‘‘The first travellers are probably going to be friends and family and they tend to stay at someone’s house. They are not going to stay in a hotel, not going to spend necessarily. Not going to spend money on tourist attractions.’’ — The New Zealand Herald

❛ There is an element

of catchup