Corporate insolvencies jump 4.4% in past year as court-appointed liquidations rise

The number of corporate insolvencies rose 4.4% in the past year according to latest figures from the Australian Investments and Securities Commission, with court liquidations on the rise at the expense of receiverships and voluntary administrations.

Much of the discussion around the rise in insolvencies has focused on the weak speed of the economy but liquidator Cliff Sanderson of Restructuring Works says the issue is evidence that the ATO is still cracking down.

“Where a lot of commentators are talking about the economic situation, I really have to hang my hat on the ATO and the banks,” he says.

The ASIC figures show 8802 external administrations in the 11 months to May 2011, a rise of 4.4% from 2010. The largest number was found in New South Wales, where 3630 companies entered external administration followed by Victoria at 2331 and Queensland with 1692.

The lowest number of administration appointments was recorded in the Northern Territory with 31, up from 20 last year.

The most significant findings were increases in different parts of Australia.

Western Australia recorded a huge 20.7% increase in the number of insolvencies, up from 517 last year to 624. ASIC said that comes despite the notion that WA is booming “in the fast lane of a two-speed economy”.

Queensland, Tasmania and the Australian Capital Territory recorded declines in corporate insolvencies.

ASIC senior executive leader of insolvency practitioners Adrian Brown said while external administration appointments had fallen compared with 2010 the number of court liquidations rose.

“Statistics collated by ASIC up to and including May 2011 show court liquidations in Australia rose 8.6% and director-initiated creditors voluntary liquidations rose 7.6%,” Brown said.

During the same period receiverships fell 1.6% to 1219 and voluntary administrations dropped 5.6% to 1332.

Sanderson says businesses need to start ensuring that they have all their finances in order because the ATO is not likely to take mercy as it did during the financial crisis.

“The ATO is what is causing the increase in numbers and will continue to do so,” he said.

“To a large extent it’s processing all the backlog, because it was quite a few months ago now they decided to go back to pursuing companies they’d let go for a number of years.”

Sanderson says business owners must start investigating how they can get finances in order, especially as the new director penalty notice scheme may make directors personally liable for debts older than three months.