20 Apr 2021

Insolvencies in hospitality industry expected to rise

9:44 am on 20 April 2021

The hospitality industry is expected to see a large increase in the number of insolvencies once the government's Covid-19 lockdown support runs out for heavily indebted businesses.

Closeup of an assortment of delicious chocolate desserts sitting with drinks on a serving counter in a bakery

Photo: 123RF

A survey of practioners and members by Restructuring Insolvency & Turnaround Association (RITANZ) indicated the numbers of appointments of liquidators for January and February at the lowest levels in three years.

"This suggests there may be a number of 'zombie' businesses continuing to operate with the help of government funding, but we may see a number of liquidations in the coming years for those that are unable to repay their debts," RITANZ chair John Fisk said.

"And that's a problem for our economy because essentially we know that they are eventually going to fail and usually once they do, the debts are higher than they would have been otherwise, and also they end up taking business away from good businesses."

He said 83 percent of members were expecting a big increase in insolvencies over the next 12 months, with another 60 percent expecting rises over the next two-to-three years.

Ninety percent expected to see a rise in insolvency levels and appointments in the hospitality industry, followed by tourism, retail, and accommodation.

Fisk said the survey suggested Covid-19 would have long-term, wide ranging impacts on businesses as opposed to short-term knocks.

The survey also found just over half of members expected to see an increase in insolvency appointments when the Debt Hibernation Scheme comes to an end in October.

He said RITANZ members were generally feeling confident in their positions and in their firms, with 77 percent unconcerned about the viability of their job in the next six months, and 80 percent not concerned about the stability of their firm.