Liquidations on the rise: how to protect your business from the impact of company liquidations

The number of companies entering liquidation in New Zealand has climbed significantly over recent years, reflecting ongoing pressures in key sectors such as construction, retail, and hospitality. According to recent reports, liquidations are up by around 26% year-on-year, with enforcement activity by regulatory agencies like Inland Revenue contributing to rising insolvencies, despite some improving credit trends. Predictions are that this is going to continue to increase in 2026.

For business owners, this isn’t just a statistic; it’s a risk that can impact cash flow, credit exposure, and long-term financial health. In this article, we unpack the current landscape, why liquidations matter to your business, and practical ways to protect your operations and finances.

Why Are More Businesses Going into Liquidation?

Several factors are driving this trend:

1. Economic Pressures

A slowing economy, tighter consumer spending, and rising operating costs have squeezed profits for many small and medium-sized businesses. Some sectors are more heavily affected than others, leading to a disproportionate number of liquidations.

2. Cash Flow and Debt Challenges

Poor cash flow management, where businesses can’t meet short-term obligations, is a common trigger for insolvency. Accumulating unpaid debts, overdue loans, and tax liabilities can quickly escalate if not addressed early.

3. Policy and Compliance Enforcement

Recent increases in enforcement by the Inland Revenue Department mean outstanding tax debts are being pursued more vigorously, which have contributed significantly to the rise in liquidations.

4. Slower Business Formation

New business incorporations have slowed, which can signal weaker entrepreneurial activity and growth, another early warning of potential future closures.

Why Should Your Business Care?

Liquidations don’t just affect the business that fails,  they ripple through the economy:

• Credit risk: If a customer goes into liquidation before settling an invoice, your business may face write-offs or delayed payments.

• Supply chain impact: Key suppliers in liquidation can disrupt your operations.

• Financial exposure: Loans or unpaid accounts with struggling businesses can erode your working capital.

Understanding these risks allows you to act early and protect your business’s stability.

How to Safeguard Your Business

Here are some practical steps to strengthen your resilience:

1. Monitor Customer Financial Health

Keeping an eye on your customers’ financial health gives you an early warning when someone may be heading toward insolvency. Tools like the New Zealand Gazette notices and credit-alert services can help you spot warning signs before overdue payments become bad debts.

2. Review Payment Terms and Manage Cash Flow

Aligning your payment terms, tightening credit policy, and following up on overdue accounts promptly can preserve your cash flow. Consider offering incentives for early payment and using receivables ageing reports to identify risks.

3. Diversify Your Client Base

Relying heavily on a small number of clients or a single industry increases risk. Diversifying customers across sectors and regions can reduce the impact if one client or industry experiences financial stress.

4. Strengthen Your Own Financial Position

Building a cash buffer and managing debt wisely creates a buffer against external shocks. Working with your accountant to forecast cash needs and stress-test your finances can make all the difference during uncertain times.

5. Understand Legal and Tax Obligations

Late tax payments and non-compliance can quickly escalate into financial stress. Stay on top of GST, PAYE, and other obligations, and speak with your advisor if you’re concerned about meeting these commitments.

Can You Avoid Liquidation Entirely?

Not all insolvencies are inevitable. Some businesses facing financial difficulties have successfully turned their situations around through proactive management or alternative structures like voluntary administration, which allows a business to restructure before liquidation becomes necessary.

Seeking advice early, at the first sign of financial stress, significantly increases your options and may prevent loss of control or value.

Final Thoughts

Rising company liquidations underscore the importance of strong financial management, vigilant risk monitoring, and smart planning. As business conditions evolve, staying informed and proactive helps protect not only your business but also the broader ecosystem of clients and suppliers you depend on.

If you’re concerned about your exposure to liquidation risk, whether through customers, suppliers, or your own financial position, Affinity Accounting is here to help. Contact our advisory team for personalised support to strengthen your business and safeguard your future.

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