Insolvency practioners have seen inquiries double in the past week as a result of the rapidly deepening Covid-19 crisis, and are now advising business owners who had never before considered the possibility of liquidation.
David Bridgman of PWC said there was only one way to describe the state of play.
“The current environment can be fairly described as a crisis situation: There are a lot of good businesses out there that would never have thought they would have these problems with a lack of cashflow,” he said.
“For many it is a first-time experience, and a very tough one. But it’s early days.”
Damien Grant of Waterstone Insolvency said last week he also started hearing from new parts of the business community.
“I’m dealing with accountants not normally involved in this space who are now considering their options. I haven’t had any good business, as a result of this, elect to throw in the towel – yet,” he said.
“We are not going to see a wall of insolvencies in the short term, but we’ve probably got a two-to-three-month period before that starts to happen. There is so much uncertainty right now. My advice is: ‘Don’t pull the trigger so quickly.'”
Bridgman and Grant both said they were advising business owners who were experiencing a catastrophic drop in income to “hive down” or “go into hibernation”, and stay abreast of government support policies which were rapidly being developed and rolled out.
Grant said he was advising a restaurateur to lay off staff and inform their landlord that rent would no longer be paid: “If you can cut your expenses to zero, IRD is not going to be doing anything with you in the meantime.”
Bridgman said: “A the end of the day we will recover, so try and preserve something you can use to recover from.”
Iain McLennan of McDonald Vague said he had been approached by larger employers – particularly in sectors hardest-hit like tourism – who were taking radical measures to try to stay afloat as the initial wage subsidy was targeted at small businesses.
“Someone was taking down their staff to one to two days a week so they could spread the wage subsidy across them all,” he said.
On Monday afternoon Finance Minister Grant Robertson announced the $150,000 cap on its wage subsidy programme would be lifted, alleviating some pressure on larger businesses.
McLennan said the current crisis had breadth that exceeded the GFC or the 1987 sharemarket crash.
“The extent where we’ve got this widespread – or seemingly widespread – impact on everyone, and the uncertainty for everyone’s income. The cashflow impact of everyone just isolating themselves voluntarily,” he said, trailing off.
McLennan said the business community would need to make allowances for each other as everyone was in the same – or a similar – boat.
“I’d like to be upbeat, but it will all depend on a recovery and the ability of businesses to continue. It’ll depend on the goodwill of all the people in individual businesses and the chain of supply: You only need one guy to say ‘I want all my money and I want it now’ and the whole chain could come crashing down.”