Insolvencies rise in October, but Christmas could bring a reprieve

The number of businesses entering insolvency reached a record number in October, but insolvency firms say activity has lessened now they’re settling in for the traditionally quiet Christmas period.

 

They also say they’re expecting a rise in the number of insolvencies in the new year, as retailers who have hung on through a dry summer end up closing down.

 

The most recent figures from the Australian Securities and Investment Commission show in October that 991 companies entered at least some form of insolvency administration, including liquidation, voluntary administration and receivership. It’s the highest October on record, up by 148 appointments from 2011.

 

The statistics are the culmination of a shocking year for insolvencies. In February there were 1,123 insolvencies, which was a record and represented a 47% increase from the average of the previous five years.

 

Dissolve managing director Cliff Sanderson told SmartCompany while there is no evidence to suggest the ATO is cracking down on small business, it’s almost certain to be a factor.

 

“I’ve always had the feeling that for the smaller insolvencies, a prime factor there is the Australian Tax Office. But having said that, we get a pretty good feel for whether or not directors are being pressured.”

 

“So I’d say it’s there, to be sure, but I’m not sure if it’s significantly more than in the past six months.”

 

The ATO is a key factor in many smaller insolvencies, as tax debts mount and SMEs aren’t able to continue. The tax office is also expected to be slightly more aggressive as the government aims for a surplus in 2013-14.

 

“It’s probably a combination of the ATO and generally poor conditions in retail and construction over the last couple of years.”

 

Retail and construction have made up a bulk of the insolvencies. Discount retail group Retail Adventures collapsed in October, along with a $30 million West Australian construction and mining company.

 

Steel engineering giant RPG Australia also collapsed with 150 jobs lost.

 

However, collapses have entered their usual slow period. Jim Downey of JP Downey & Co says he hasn’t noticed any uptick in insolvencies caused by the ATO, and says “the impression that I get is that a lot of firms are reasonably quiet”.

 

The industry might have been bustling in October, he says, but for now, “lots of retailers decide they’ll hang around for the roll of the dice of Christmas”.

 

“For some of them it’ll be good, and others, not so good. So you wouldn’t expect them to close their doors ahead of the peak season.”

 

There are a few key factors affecting the insolvency industry right now. One is the new personal liability laws, which Downey says could have more of an impact early next year if businesses fail to understand how they work.

 

The ATO has also started cracking down on firms using these laws, it has been revealed.

 

Downey also notes that in the manufacturing and tourism industries, collapses may even slow as businesses learn to deal with the higher dollar and adverse conditions: “Perhaps a clean-out has occurred there, so to speak”.

 

Nevertheless, Sanderson says he’s expecting a higher number of collapses in February and March as the retail season take hold. However, like Downey, he says 2013 may not be as bad a year as the past few.

 

“I’d probably expect [insolvencies] to tick along at a higher level, but I don’t think they’ll rise materially.”

 

This story first appeared on SmartCompany.