Restructuring Services


What lies beneath the surface for 2021?

A snapshot of some of the key challenges and opportunities expected for business owners and financial stakeholders this year

2020: a year of crisis, a plethora of lockdowns and a race for a vaccine. This time last year, who could have predicted the devastating effects that a pneumonia-like virus emerging in the Chinese city of Wuhan would have on the world’s population and global economy?

While 2020 was a difficult year for many businesses in New Zealand, there were some bright spots in many sectors which meant the full extent of the predicted economic doom and gloom did not eventuate. So, what’s in store for 2021?

In this article, we look at the key challenges and opportunities that the Deloitte Restructuring Services team believe business owners and financial stakeholders can expect in 2021, including the impact of government stimulus drawing to a close, heightened scrutiny on directors and opportunities for investment and/or divestment.

Further challenges ahead as COVID-19 stimulus packages draw to a close…

Despite widespread belief that COVID-19 would cause significant business failures, the number of companies entering formal administration, including liquidation, receivership and voluntary administration, dropped significantly in 2020. Data from the New Zealand Companies Office reveals that 1,574 companies entered formal administration in 2020, down from 1,914 companies in 2019 and 2,129 companies in 2018.

This is a trend which has persisted over the last 10 years, with the number of companies entering formal administration declining 5 per cent on average year-on-year. There are a multitude of factors driving this, including the buoyancy of the New Zealand economy over the last ten years, with New Zealand’s GDP outstripping total OECD GDP since 20121.

Similarly, the number of winding up applications through the Courts, published in the New Zealand Gazette, has significantly dropped over the past two years. One of the main drivers of this decline is the reduced number of applications made by Inland Revenue, dropping from 48 per cent of all applications in 2019 to 33 per cent in 2020. The focus by Inland Revenue in 2019 on transferring to a new computer system, and the impact of COVID-19, together with Government stimulus packages, have also played a major part in this reduction.

The significant decline in winding up applications and the number of companies entering formal administration in 2020 will likely have a number of implications down the track.

Firstly, we predict that there is going to be an accumulation of tax liabilities owing by companies as a result of COVID-19 and the reduced number of winding up applications in 2019 and 2020, equating to between 12-24 months of tax arrears for some companies.

In addition, our analysis indicates there are around 250 struggling businesses that would likely have gone into liquidation in 2020 if it hadn’t been for the current government COVID-19 stimulus, most notably the support and cash flow provided by Inland Revenue2. By December 2021, we expect around 1,500 appointments will have been deferred as a result of these stimulus measures, which equates to almost 12 months’ worth of liquidations3.

New Zealand companies entering into insolvency

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As these measures begin to wrap up, and subdued market conditions persist, it is likely a wave of insolvency appointments will result from February 2022 onwards as the usual level of appointments occur coupled with genuine COVID-19 impacted collapses. 


Directors under scrutiny…

Given the on-going uncertainty, we have seen heightened awareness and concern from many business owners as they navigate through the challenges resulting from COVID-19, particularly in relation to the responsibilities of directors.

This increased focus on director responsibilities has also been driven by the recent Supreme Court decision regarding Debut Homes4 which set out the duties of directors when a business is facing financial difficulties. In a situation where a business is not able to be rescued, a director may be found to be trading recklessly if they continue to operate the business and/or enter into transactions.

Directors in a similar position should look to engage the company in a formal insolvency mechanism (i.e. voluntary administration, liquidation, receivership or creditors’ compromise) to wind down its affairs, or in a manner that, at a minimum, emulates a formal insolvency mechanism.

In the future, we may see more directors seek a combination of the following in response to business financial difficulties: increased borrowing, amended banking and/or trading terms to buy time to determine whether the position is salvageable, liquidating the company or, where there is secured debt, request financier appoint receivers.


Opportunities to invest/divest…

We believe Mergers and Acquisitions (“M&A”) and transaction activity will have a significant role to play in 2021, from both an investment and divestment perspective. M&A activity could present opportunities for inorganic growth, funding for productive assets, consolidation of portfolios and refinancing of debt at attractive rates.

When reality starts to bite for those companies who have been struggling due to closed borders and supply, freight and labour challenges, we could see a flurry of M&A activity particularly in the distressed space and those looking to exit while still in a position to do so.

On the investment side, with concern that current financial assets are either overvalued or lack a return from persistent low interest rates, there is money available at affordable rates for good, productive assets. With banks reticent to lend to some sectors and an increase in excess cash looking for a home, we expect to see a rise in the use of non-bank funding to finance investments.

We also expect to see private equity investment increase in 2021 as funds look to rebalance their portfolios from a geographical and timing perspective, and decisions which were put on hold during 2020 are revisited.


In conclusion…

On the face of it, 2021 looks to be starting off as a steady year of recovery for most. However, it is what lies beneath the surface that holds the greatest risk, and reward. We leave you with three key things to consider:

  • Is your business exposed to a struggling company? Businesses should remain vigilant in monitoring the health of their supplier and customer chains to insulate against being exposed to a potential wave of insolvency appointments.
  • While economic times remain uncertain, there is still considerable opportunity for New Zealand businesses. Keep an open mind regarding investments and divestments, particularly on the structuring and source of financing, to capitalise on opportunities quickly. With an unpredictable economic outlook, it will be important to assess the sensitivity of cash flows against new asset purchases to gain comfort over debt serviceability.
  • For those companies and sectors which have been more impacted by COVID-19, reviewing options early, including turnaround and divestment, provides the greatest opportunity to secure the best value.




1. Historical OECD annual GDP data GDP and spending - Quarterly GDP - OECD Data accessed on 2 February 2021

2. Based on comparing the 18% drop in formal insolvency appointments in 2020 compared to the average year-on-year drop of 5% seen historically. Data sourced from the New Zealand Companies Office.

3. When compared to the rolling 10-year monthly average number of insolvency appointments over the period 2011 – 2020. Data sourced from the New Zealand Companies Office.

4. Debut Homes Limited (in liquidation) v Cooper [2020] NZSC 100

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