INSOLVENCY FORECAST FOR 2021: EXPERT

AUCKLAND: Next year is going to be a “watershed year” for business failures an insolvency expert is predicting, unless companies can come up with a plan now to get out of debt and survive.

John Fisk, national leader of restructuring for PwC and chair of the Restructuring Insolvency and Turnaround Association New Zealand, said insolvency applications had come down significantly under lockdown but massive amounts of government subsidies meant many businesses weren’t addressing the underlying issues related to debt.

Kick the can

“What concerns me is that we have kicked the can down the road.”

Applications for winding up businesses/liquidations rose to 93 in February before falling down to just 17 in April.

They had since bounced back to 54 last month.

Fisk said apart from the wage subsidy most of the other allowances being made for businesses were debt related.

Pay later

“IRD is going soft on you paying PAYE and GST - but it doesn’t wipe the obligation - you just have to pay it later.”

“And the same for your landlord - just because you didn’t pay rent this month because you couldn’t afford to doesn’t wipe the debt you have to the landlord.”

Fisk said those solutions had not addressed the problem that assumes businesses can get back up and running and generate sufficient cashflow that is enough to not only pay their current debt but historic debt as well.

“That is going to be a really big ask for some businesses.”