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Business Insolvencies On the Increase, Says Expert

Media Release
8 January 2006

Business Insolvencies On the Increase, Says Expert

Business insolvencies appear to be tracking up significantly, according to a New Zealand specialist business recovery and insolvency firm. Businesses need to look at their business costs and collection of debtors to resolve any issues, he says.

John Whittfield, principal of McDonald Vague Business says that the weeks leading up to Christmas were extremely busy.

“Anecdotally, it appears to us that insolvencies were tracking up significantly,” he says. “What we were finding was that things had been bubbling along unsatisfactorily in many sectors for some time before Christmas. December saw a significant increase in the numbers of businesses seeking advice regarding their financial plight. The trend looks to be continuing in the New Year.”

Mr Whittfield says that liquidations and receiverships were occurring “right across the board, in every sector. Equity may be high but cash positions are tight.”

He advised businesses to look carefully at their positions as early as possible in 2006.

“Don’t act like an ostrich,” he says. “Business owners need to take an early, hard look at the problems their businesses may be facing, and act to control debtors, stock and expenditure. Cash in 2006 is going to be king, so look now to see whether your business has cash flow problems. Exporters will need to continue to monitor exposure to exchange rate fluctuations. And if you think your business is already in trouble, go to you accountant or specialist business recovery expert and talk about it before it’s too late.”

Mr Whittfield says that evidence from late 2005 showed that the exchange rate was having an impact as was cautionary advice on consumer spending.

“Levels of borrowing are also having an impact on businesses because some businesses are highly geared. Equally, high levels of growth may be causing problems. Growth can also be followed by severe cash flow issues,” he says. “In the past few years, people have also created elaborate business structures. This is similar to the 1980s for those of us who have been around to see it before. Some companies have expanded beyond their core businesses which may be new territory especially as the economy slows.”

Mr Whittfield also pointed to the numbers of small companies and businesses created in the past five or so years, during New Zealand’s economic expansion.

“Some people are in business for the first time,” he says. “and they have never experienced a downturn. They don’t understand the dynamics of a slowing economy, and if they’ve simply been parking problems, they will be affected. If they have borrowed against their own private property to finance their business, debt servicing and rising interest rates have a double impact as business activity slows.”

“No business is immune as trading conditions are becoming very difficult, and even the regional economies have been tightening for some time.”

Mr Whittfield says that spikes in insolvency numbers run in cycles. “We could be seeing the beginning of that now.”

“Whatever the reasons the end result is that insufficient cash may be flowing into the company for that organisation to meet its commitments when they fall due. Managing this situation is part of the skills needed to run a business. So my advice to businesses in early 2006 is take a look now and seek effective advice.”

McDonald Vague was established in 1989 as New Zealand’s first specialised Business Recovery and Insolvency practice. It remains one of the largest independent national practices focused solely on business recovery in New Zealand.


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