Business liquidations surge in South

Construction businesses have been some of the most common liquidation cases. PHOTO: GREGOR...
Construction businesses have been some of the most common liquidation cases. PHOTO: GREGOR RICHARDSON
Liquidations in Otago and Southland have jumped nearly 75% in the past year as Covid-19 pressures and supply chain issues continue to bite.

Figures released by the Ministry of Business, Innovation and Employment showed there were 65 liquidations in the South in the year to May, compared with 37 in the year to May 2021.

Among the companies going bust are a string of building companies as the industry faces problems with sourcing building materials like Gib and timber.

However, liquidators are stressing while the numbers might look dramatic, it might not be as bad as it seems.

Queenstown’s Findex managing partner Duncan Fea, who specialises in insolvency and business restructuring, said there was no doubt it had been a tough period for businesses.

He said some of the liquidations could have been solvent companies using the process as a way to wind up business.

For the insolvent liquidation — businesses that had run out of cash — Covid-19 had put significant strain on cash flows.

The most common businesses going into liquidation in Queenstown were from the hospitality, tourism and construction sectors.

"You only need to walk down the main street of Queenstown and see the shops," he said.

Mr Fea said it was mainly small to medium-sized enterprises affected and he was not aware of any larger businesses folding.

While it had been tough, the major tourism and hospitality businesses had been able to "hang in there" by either restructuring or recapitalising.

There had definitely been an increase in insolvent liquidations, particularly in the construction industry.

The sector had been severely impacted by supply chain issues and material shortages impacting company’s ability to finish jobs. Some of the liquidations in the construction sector were also because of poor business management, particularly as the sector came off a peak.

"It has come off an absolute high where everyone could make money, to tightened up supply chains, rampant inflation and just poor management, leading to closures," Mr Fea said.

Dunedin liquidator Emma Laing, of Trevor Laing and Associates, questioned the figures, saying it was difficult to tell whether there was any real increase in insolvent liquidations. She believed insolvency activity was still down from pre-pandemic levels.

During Covid-19, the Inland Revenue Department, which often takes businesses with unpaid debts to court to liquidate them, held off on taking action it might normally have taken.

Building and construction as well as smaller retailer and hospitality businesses were definitely the common liquidations at the moment, she said.

"Those industries are often quite vulnerable because their margins are so slim at the best of times so any little change, like Covid, affect them more."

Before the pandemic, liquidators were bracing themselves to be inundated with cases but that never really happened.

The ongoing impacts of Covid-19, rising cost of living and rising interest rates could mean more liquidations.

In recent months, the Otago Daily Times has reported on several liquidations in the lower South Island mostly from the construction and retail sectors.

In early April, clothing store Camerons Clothing Ltd — which operated in Oamaru, Waimate and Timaru — was placed into liquidation owing about $900,000 to nearly 100 creditors.

Owner Warren Park at that time said problems getting stock, all his costs rising and shopping habits changing had caused the business to fail.

Soon after, Otago Homes Ltd, a franchise of Landmark Homes, was put into liquidation owing more than $5million.