February-March jump in bankruptcies, liquidations and no asset procedures could be start of GFC related increase in insolvencies

By Gareth Vaughan

The number of bankruptcies, liquidations and no asset proceedures surged 39% over the last four weeks compared with the previous four, and was up 21% compared with a similar period of last year.

Figures from the Ministry of Economic Development's Insolvency & Trustee Service show 414 bankruptcies, insolvencies and no asset proceedures over the four weeks from February 24 to Friday, March 16. That's 116, or 39%, higher than the 298 in the four weeks from January 20 to February 17, and 71, or 21%, more than in the four weeks from February 4 to March 4, 2011.

Most well known of the 15 company liquidations last week was the BBQ Factory, which was once owned by ASB, albeit briefly in 2004. The bank owned the business after the failure of an initial public offering by investment company StoreFund, which ASB was the lead manager and underwriter of. StoreFund was to buy the BBQ Factory in its first post float acquisition. Instead ASB bought it after the float flopped, then sold the BBQ Factory on to Hellaby Holdings.

The Official Assignee was appointed liquidator on March 14. KPMG was appointed the BBQ Factory's receiver last September after problems with the taxman, with IRD claiming NZ$641,235 from the firm. See the first receiver's report here.

Despite the recent rise, the total of 359 bankruptcies, liquidations and no asset proceedures in the month of February is well shy of the last monthly peak of 658 in September 2009.

GFC lag picked

Ernst & Young insolvency practitioner Rhys Cain suggested not reading too much into the February and March figures given they were often busy months after the summer holiday period. Cain said he did, however, expect to see an increase in the number of company demises this year expecting the April to August period to be key.

"History just shows that the big year after the 87 sharemarket crash was 91, 92 - that sort  of region - and we're now getting into that sort of time lag since the global financial crisis started," Cain said.

There were "a whole heap of reasons"  why he expects an increase in insolvency activity.

"The global financial crisis plays its part, the falling off of business interruption insurance in Christchurch plays its part, the time and effort it has taken people to struggle on, the economy's not picking up with any great speed, and people aren't spending money like they used to five years ago," said Cain.

That said, he suggested there was a chance some people may still be able to stave off insolvency.

"One of the reasons they may be able to is the banks are being very proactive working with people," Cain added.

Concern over interest rates at higher level

Meanwhile, figures from Roy Morgan Research's State of the Nation Report out last week, suggested although the level of concern over interest rates has dropped - along with the interest rates themselves - since 2008, the 32.3% current level of concern seems to have settled at a substantially higher level than the 25.5% of 10 years ago.

This comes with Roy Morgan saying the proportion of mortgage holders "at risk" dropped to 19.8% at December 2011 from 32.3% at the March 2008 peak. The proportion "extremely at risk" fell to 12.7% from 26.1%.

Roy Morgan describes "at risk" as those paying more than a certain proportion of their household income - 30% to 45% - depending on income into their loans. "Extremely at risk" is again defined as those paying more than a certain proportion of their household income - 30% to 45% - depending on income into their home loans. Roy Morgan says its State of the Nation Report gives a ten-year perspective on New Zealand society based on about 120,000 interviews conducted between January 2001 and December 2011.

* A no asset procedure is when a debtor who is unable to pay their debts uses an alternative to bankruptcy through a no asset procedure. Unlike bankruptcy which typically lasts three years, a no asset procedure lasts one year. The period of a no asset procedure can be extended by up to 25 working days by the Official Assignee if a creditor objects.

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