The shortening of Omicron isolation periods may give some relief to businesses say insolvency experts, but many are still facing permanent closure if they can’t open their doors due to staff isolating.
Tompkins Wake insolvency specialist Wayne Hofer says even before Omicron entered New Zealand there was a severe labour shortage economy wide, compounded by New Zealand’s border closures.
“Some businesses had already seen their bottom line reduce drastically. If they have no staff, they cannot open their doors, they cannot get enough money coming in to pay the expenses,” says Wayne.
Shortening the isolation periods will release some pressure on businesses that have staff isolating allowing them to increase their trading and money coming in the door, says Wayne.
He believed this might also be particularly important right now as the effect of Russia’s invasion of Ukraine isn’t yet fully baked into the New Zealand economy.
“A labour shortage is a recipe for economic pain in and of itself. When you add ingredients, such as supply chain disruptions, record inflation, and Omicron and the mandatory isolation periods this should mean a surge of insolvencies,” says Wayne.
New Zealand insolvency practitioners have been eerily quiet however, but it may be the calm before the storm as New Zealand businesses continue to soldier on, he says.
“If businesses can’t get staff, or their staff are forced to isolate, they can’t get enough money coming in the door to remain solvent and after soldiering on for the past two years many New Zealand business have nothing left in the coffers,” says Wayne.
Businesses have a two-limb test to be legally solvent. The value of a company’s assets must be greater than the value of its liabilities, including contingent liabilities and the company must be able to pay its debts as they become due in the normal course of business.
The Omicron wave and the associated government-imposed restrictions mean many businesses are facing a situation where they simply do not have enough money coming in the door to remain solvent.
“While there is nothing to see right now, the economic pressures New Zealand is facing currently means there may well be an uptick in insolvency across the board later this year,” says Wayne.