Low insolvency rates signal calm before the storm for SMEs

Insolvencies among Australian companies dipped below 1000 per month for the first time in almost seven years in April, according to statistics released by the Australian Securities and Investments Commission this month.

There were 935 insolvencies recorded for the month of April, the lowest non-January figure since December 2007 when 972 insolvencies were recorded.

The number of insolvencies has been dropping since July last year, which saw 1501 cases, with the construction and small business sectors continuing to bear much of the brunt.

Jim Downey, founder of insolvency accountancy firm JP Downey & Co, says he is not particularly surprised by the figures.

“That would be consistent with anecdotal evidence around the profession—it’s certainly quiet times for insolvency practitioners at the moment,” he says.

Downey attributes the slowing down of insolvencies to a sense of uncertainty in the domestic economy, and says there may be trouble for SMEs on the horizon.

“The economy seems to have gone into a kind of wait-and-see mode. And it seems the banks have been in that mode for some time, as have the Australian Taxation Office, which is a major generator of activity in the sector,” says Downey.

“It’s been out there in the press that [SMEs] are finding times pretty tough,” he says. “With a budget that’s been brought down that seems to have been very unpopular, I don’t think that’s going to do a lot for stimulating the economy – and if it has the opposite effect, it’s likely that insolvency practitioners will get a whole lot busier in the future.”

However, Jarrod Sierocki, director of consultancy firm Insolvency Guardian, told SmartCompany the figures are not an accurate indication of insolvency rates when it comes to small business.

“The insolvency numbers [for small businesses] are at their highest than they have been in the last three years,” says Sierocki. “The small business tax debt is huge at the moment… It’s very hard for small businesses at the moment, your hairdressers and fish and chip shops, they’re hurting right now.”

“You’re seeing a lot more small businesses going to creditors voluntary liquidation, on the basis that they can’t really afford to survive,” says Sierocki.

According to the ASIC figures, the ‘other businesses – personal services’ sector, populated mostly by SMEs, continues to see the most insolvency appointments year-on-year, accounting for just over one-third of all insolvencies in April.

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