Insolvency drought about to erupt

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The latest figures show liquidations intensifying after the pandemic-caused pause, although there is “still some way to go” according to the Business Insolvency Index.

The index, produced by Insolvency Australia and sponsored by an insurance broker people with reduced mobilityshowed that the total number of appointments increased by 6% for the third quarter of the 2021-22 financial year compared to the previous period.

It found that court-ordered liquidations were up 114% from the same quarter in 2021, with creditor voluntary liquidations and monitor appointments also higher.

On the other hand, voluntary administrations decreased by 35% and a relatively low overall level of liquidations.

However, the director of Insolvency Australia said pressure on businesses was returning to pre-pandemic levels.

“It is certainly an indication that the insolvency market is heading towards normalization – although there is still some way to go,” said Insolvency Australia director Gareth Gammon.

“The past two years have been one of limbo for our industry (although others might have a stronger term to describe it) – but various triggers suggest things are starting to change.

“Companies are now under increasing pressure, the ATO is calling for its cues – as are banks – and credit bureaus are bracing.

“Each day we hear more about the ATO and its debt collection, in particular the issuance of penalty notices by directors on a ‘daily basis’. The ATO even said it expected an increase in bankruptcies.

“And pressure points like supply chain disruptions, worries about the Russian-Ukrainian conflict, the election campaign, rising interest rates and spikes in the cost of living, not to mention the fact that banks are also beginning to take action against unpaid debts, creating what some call a “perfect storm”.

“We expect the full year numbers to provide even stronger evidence of market developments.”

NSW saw the most insolvencies in the first three quarters of 2021-22 according to the report, with 1,900 appointments. Meanwhile, Victoria recorded 1,041, Queensland 857, Western Australia 324, South Australia 137, ACT 133, Tasmania 19 and the Northern Territory four.

Of these, the most common appointments were judicial liquidations.

Mr Gammon said the word from Insolvency Australia’s partners was that the first vague liquidations will begin shortly after the election and tax season, led by so-called zombie corporations.

“We recently surveyed our partners and the majority said that in 2022 they expected to see more stuff, but with lower average fees,” he said. “Could definitely indicate zombies and smaller, less complex issues being addressed.”

Insolvency drought about to erupt

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Last update: May 31, 2022

Posted: Jun 01, 2022

Philip King

Philip King

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Philip King is editor of Accountants Daily and SMSF Adviser, the leading sources of news, information and educational content for professionals in the accountancy and SMSF industries.

Philip joined the titles in March 2022 and brings extensive experience from various roles at The Australian national broadsheet daily, most recently as Automotive Editor. His background also includes spells in various consumer and trade magazines.

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