Nine-year high for company liquidations
Company liquidations have reached a nineyear high, and there’s little hope for improvement until spring.
Credit reporting company Centrix, which collects data on liquidations, said in March there were 230 company liquidations, a level not seen since 2015.
However, Centrix managing director Keith McLaughlin said the true number of businesses ceasing to operate was likely to be much higher, as creditors of failing businesses often decided it was not worth the legal costs of applying to have them liquidated.
McLaughlin did not think monthly liquidation numbers had yet peaked, and did not expect them to start dropping until interest rates fell significantly.
The high cost of money, including high mortgage rates, was combining with stubbornly high inflation to crush household confidence and spending, he said.
“The only way interest rates come down is if inflation comes down,” he said.
Inflation fell in the first quarter to 4% from 4.7% at the tail end of last year, but home loan rates remained high.
Crispin Vinnell, vice chair of the Restructuring, Insolvency and Turnaround Association, said: “I don’t think we have hit a peak, though that’s just a gut feeling.”
But, he said: “I haven’t been looking at the stats because I’ve been too busy.”
A lot of what happens next is down the Inland Revenue, he said, as a large proportion of liquidations were initiated by the Inland Revenue over unpaid tax. April applications to the High Court of liquidations showed the majority were taken by the tax department.
One in four liquidations in March were from the construction sector, McLaughlin said, highlighting the struggle the sector faced as housing projects stalled due to tight finances.
McLaughlin said the tough trading conditions could be traced back to high mortgage rates and inflation curtailing consumer confidence, and ability to spend. There was a modest rise on people behind on their loans and power accounts, Centrix data showed.
“Consumers aren’t spending money, so a lot of construction, hospitality and retail companies are finding it really tough,” McLaughlin said.
Shorter days, and the approach of winter, would help keep a cap on consumer spending, as people stayed home more, and spent less than in warmer seasons.
But, McLaughlin said: “I’m hoping come September and October, we will see more consumer confidence coming through, and the inflation rate coming down to a more acceptable level.”
Consumer demand for some categories of loans had risen, he said, however demand for loans to buy cars remained depressed.
“Mortgage lending is showing increasing signs of growth, tracking 6% higher year-onyear in the first quarter of 2024, buoyed by more stock being available on the market. This could be another sign the real estate sector is beginning to rebound, although only time will tell if this is a trend rather than a blip,” McLaughlin said.