Regional companies more likely to fail

Fewer Wellington companies are falling over than a year ago.

But small operators in centres including Whanganui, Palmerston North and New Plymouth are more likely to go out the back door, according to an insolvency expert.

Overall, the number of lower North Island companies facing insolvency has remained steady in the past 18 months, despite figures showing a decline nationally.

Courts of New Zealand statistics showed the number of insolvency cases filed in the High Court around the country had decreased 10 per cent in the year to December 2012, as the impact of the past recession waned.

That followed an 18 per cent decline for the year to June 2012.

In Wellington, the number of active insolvency proceedings had dropped about 19 per cent from June to December last year, from 72 to 58.

Deloitte recovery partner David Vance said in the past year or so, liquidations had remained relatively stable for the lower North Island.

"The numbers of liquidations that we are picking up is consistent with last year, although the numbers we're getting are less than they were two or three years ago," he said.

Vance said a growing trend had been in the number of out-of-town liquidations, as opposed to Wellington companies.

"One aspect we have noticed, probably in the last 12 months rather than more recently, is that we get quite a number of companies based outside Wellington.

"Whanganui, Palmerston North and New Plymouth are the three most common places we get appointed to be liquidators."

There were trends common to the cases, including an awful lot of small company liquidations, he said.

"People who you would often expect to be sole traders have started companies without the required knowledge and experience of what extra steps are necessary in trading in that format.

"Unfortunately, that often leads to them getting into problems or issues which they don't have the experience or knowledge to get out of."

Vance said the people responsible, the directors and shareholders of companies, had often experienced insolvency in the past.

A reluctance to take advice also significantly contributed to the level of loss incurred by all the stakeholders in a company, he said.

"Liquidations roll on in good times and bad. The good times just help cover up bad management and not only bad management but bad business ideas.

"In bad times they get flushed out a little bit quicker, but they always exist and so there will always be a certain base number of liquidations."

He personally believed it was too easy and too cheap to set up a company in New Zealand, compared with international economies.

"There is no driver's licence of what you need to do to run a company, there is no compulsory director's training, no minimum capital requirements.

"When people look around the business world they see companies and a lot of people, I believe, seem to think that is the only way to do it, without examining the extra complications which come with something like that."

Contact Hamish McNicol
Business reporter
Twitter: @Hamley_Maqnirez

The Dominion Post