The latest Corporate Insolvency Index from Insolvency Australia has revealed an increasing number of businesses being wound up by court orders.
In the first half of the 2024 financial year, court wind-ups increased by 133 per cent compared with the corresponding period last year, a trend that’s likely to continue as creditors such as the ATO and the ‘Big Four’ banks crack down on unpaid debts.
In the six months to 31 December 31 2023 external administrator and controller appointments rose by 24 per cent. Creditors’ voluntary wind-ups accounted for the majority of appointments (2308), followed by Court-enforced wind-ups (1076), voluntary administrations (731) and controller appointments (416).
“The ATO and the banks, in particular, are using all the tools in their arsenals to recover monies owed – and that includes long-term, legacy debts from COVID and pre-COVID years,” Insolvency Australia Director Gareth Gammon said. “However, the number of businesses opting for the small business restructuring (SBR) regime also continued to rise, which shows that directors are acting earlier to address their debt issues.”
Insolvency Australia member Scott Andersen, Principal of Worrells in Geelong, stressed that, with the exception of the Covid years, the ATO has always been a key driver of insolvency appointments and that this is not expected to change.
“They have a debt book of $50.2 billion which they are trying to collect, and they have significant tools at their disposal, such as issuing Director Penalty Notices and garnishee notices,” Andersen explained. “But what we have seen is that the ATO is receptive to considering an offer via an SBR. These proposals are subject to criteria eligibility and while we are not aware of any secret formula, the ATO typically views a proposal more favourably when there has been a good history of tax obligation compliance and there are no large outstanding related party asset loan accounts.”
Insolvency Australia member Bob Jacobs, Founding Partner of Auxilium Partners in Perth, said that while he expects to see an increase in insolvencies in 2024, the organisation believes that if directors act early there will be opportunities to restructure their affairs through formal insolvency process and preserve livelihoods for their businesses and employees if proper professional advice is sought. Conversely, Jacobs warned that there are a lot of businesses that need to be ‘ended’ because they are no longer viable and that have legacy debts. On the plus side, he envisages that this return to a ‘normal economic’ cycle will pave the way for new entrants and business ideas in the market.
