Insolvency figures rise in June as recovery stalls

The number of businesses falling into insolvency increased 4% in June to 848, as SMEs continue to struggle with weak consumer spending and tight credit conditions.

While the number of insolvencies in June fell from the 914 recorded during May, the managing director of accountancy group Taylor Woodings, Michael Ryan, says the monthly decline isn’t a sign that the wave of SME collapses will stop.

“These June figures are higher than the June figures last year, and this year’s May figures are higher than May last year. We looked back at the statistics over the past 10 years, and these are the highest May and June insolvencies over the decade.”

He claims businesses have been attempting to hold on during the global financial crisis and are now just running out of steam.

“This is the sign of a lot of built-up pressure in businesses in Australia. That pressure is coming from costs of living, consumer demand, and tight liquidity within the banking sector.”

“It is still extremely difficult for SMEs to obtain working capital, and so these insolvencies are the results of a long period of pressure on those businesses. Really, there doesn’t seem to be any light at the end of the tunnel.”

The figures from the Australian Securities and Investments Commission show New South Wales recorded the highest number of collapses at 337, up from last month’s count of 332. Victoria came in second at 204, followed by Queensland at 196.

Ryan says outlook is bleak. The end of the Government’s stimulus is long past, the federal election is making businesses nervous and retail sales show no sign of recovering any time soon.

“I think we’re going to continue to see this level of insolvency at least through the end of the year, if not even further beyond that. We do see fluctuations month to month, but these are historic highs and not much is going to change that apart from major economic forces.”

Until retail sales pick up and the global economic environment improves, Ryan says businesses are in for a fairly long fight and they need to survive as best they can.

“I don’t see what’s going to change things overnight. We are in tight credit situations and that’s really driving a lot of businesses down, with confidence and so on.”

“So when we start seeing more credit flowing, that will get a lot of businesses out of the cycle. But there are other factors including retail and housing approvals, and we need to wait for those to pick up.”