Insolvency experts say SMEs collapses are starting to rise

The wave of small and medium business collapses that we’ve been bracing for might finally be breaking. Insolvency experts in Sydney and Melbourne are reporting a sharp rise in the level of inquiry from SMEs for insolvency services.

Insolvency expert Jim Downey from Melbourne accounting firm Downey & Co., says that insolvency inquires have leapt sharply in the last few weeks as companies that had been holding on for months have finally crumbled.

In the last few weeks he has taken on cases involving companies from the printing, textiles, trucking and agriculture sectors.

“They’ve hit the wall as far as the banks are concerned,” Downey says.

Martin Green, insolvency expert with the Sydney office of BRI Ferrier, has also seen a sharp rise in inquiry levels. His main hotspot is property companies and developers.

“There are a lot of buildings that are struggling at the moment,” Green says. “The banks are lending for first home buyers and completed property, but if you’re a developer trying to build 10 townhouses, forget it.”

The latest insolvency data from the Australian Securities and Investment Commission show 829 companies entered external administration in May, compared with 780 last year.

However, the 6% rise was relatively modest and the total number of insolvencies in May was well below the 1,095 companies that fell into external administration in March.

But insolvency experts have been bracing for a crunch and it appears to be coming.

“The ATO is still propping up a lot of people and giving them pretty generous deals,” Downey says. “But there will be a natural build up of troubled companies and if the ATO is true to form they’ll do it in one fell swoop. We’ll see half a page of wind up orders in the law notice section of the paper.”

Green is also bracing for a crunch. He says the banks have been holding off putting companies into administration in the last few months, but expects a flurry of activity after the big banks report their financial results in the coming months.

Yesterday, NAB chief executive Cameron Clyne flagged a “very difficult” 12 months ahead and all banks have increased their provisions for bad debts in the last six months.

“I don’t think that the SME market has felt the full brunt of the downturn yet,” Green says.

Downey agrees. “A few months from now the bubble is going to burst.”