Corporate insolvencies on the rise

An increasing number of small businesses are "hitting the wall" as banks clamp down on debtors, according to Dissolve

Corporate insolvencies on the rise
Corporate insolvencies on the rise

May 10, 2011

An increasing number of small businesses are "hitting the wall" as repercussions of the GFC trickle through to operators and banks clamp down on debtors.

According to Dissolve, a business specialising in company liquidations, the most recent release of ASIC insolvency statistics reveals that in March the number of corporate insolvencies has taken a turn for the worse.

The number of companies entering some form of insolvency administration over the month was 968 - the third highest calendar month ever recorded (since 1999).

The only months that have been higher were at the height of the GFC being November 2008 (1,011) and March 2009 (1,095).

This follows last month’s data where February was the highest February on record (852).

Dissolve CEO Cliff Sanderson says during 2010 the number of insolvencies dropped off the peaks from the GFC but they have now jumped back up again.

"We also know from our research that the dollar cost to Australian Banks of their bad debts has remained stubbornly high as they are still running at around $5.6 billion a quarter which is over 5 times pre-GFC levels," Sanderson says.

He says there are a number of factors behind the spike in insolvencies, the first of which being the time it takes for a financial crisis to work its way through to trading businesses.

"We saw a few large corporate collapses post GFC and we are now seeing a large number of smaller businesses hitting the wall."

Secondly, Sanderson says in the period immediately after the GFC, the ATO was very accommodating for companies struggling to pay taxes – but this is no longer the case.

"Lastly, the Banks showed quite a bit of patience post GFC but for the last year or so have been more aggressive in appointing Receivers and taking possession of assets," he says.

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