Photo: RNZ
Business owners who put up their own assets as security for lending are being put into personal receivership in increasing numbers.
Keaton Pronk, an insolvency practitioner with McDonald Vague, said there had been a "large jump" in personal receivership appointments, which started in June last year and has sped up considerably this year.
There were 30 last year, two-thirds of which were after June. In August there had already been 31.
He said most had been driven by a small number of business lenders promoting themselves on "quick and easy access to funds often at higher interest rates, with even higher penalty rates, than those available through traditional lending means".
As with a company, when an individual enters receivership, a creditor-appointed or court-appointed receiver takes over the person's assets and tries to repay debts by managing the assets or selling them.
Information published in the New Zealand Gazette shows receiverships being instigated by organisations such as Revive Finance, Fundtap, Prime Finance, and Ignite Solutions.
"A lot of it comes through from second- and third-tier lenders, you see a lot of the online lending that you can do - a couple of clicks and you get the loan straight into your bank account kind of thing," Pronk said.
"As part of that paperwork, people are providing security in their own name not just their business name, It's the very easy 'click click click and the money's there' but they don't fully understand the repercussions of perhaps what they're doing and they're not getting advice on reading the fine print."
He said people could end up paying high interest rates quickly, especially if they were charged penalties. "It can be 20 percent-plus."
He said the numbers were likely to continue to increase while the economy was soft. "It's tough out there for businesses."
Damien Grant, of Waterstone Insolvency, agreed more lenders were taking personal general security agreements (GSAs) from borrowers.
"That's been a change in the market for the last two years. We've probably done more personal receiverships in the last three years than the decade leading up to it. It's a change business practice."
He said it often took too long to enforce a personal guarantee agreement through the courts, so a personal GSA was a way to give lenders access to assets like property or shares if a company defaulted on a loan.
It could take up to a year to resolve a personal receivership if it involved a family home he said.
Grant said for every personal receivership recorded, there would be four or five that did not go that far because the person was able to restructure their lending or take out a second mortgage.
Financial Services Federation executive director Lyn McMorran, which represents many lenders, said the number of insolvencies for businesses was increasing and it was likely that some of them had the family home linked as security.
"Our members tend not to take personal security to the extent that the banks do. They are more likely to take security over the asset being purchased or they offer asset leasing alternatives so I'm not hearing anything about having to realise on personal security for business lending from our members."
Independent economist Shamubeel Eaqub said it was a symptom of the downturn, which had hit businesses harder than individuals this time. "Businesses are going under."
He said it made sense for lenders to want to hold some security against their loans. "Especially smaller businesses, it's very hard to prove you've got the finances and track record to be able to borrow on the basis of that. Many businesses don't have physical inventory that you can take security over. So what do you do? Either you borrow against your house and put the money into the business or you give a personal guarantee."
