Business insolvencies spike, as creditors get aggressive

There’s been a strong rise in the number of businesses entering external administration (EXAD) for the three months to September, as poor sales and increased creditor activity takes its toll.

Lorna Brett
Lorna Brett
Cashflow · 11 Nov 2011 · 2 min read
Above Business insolvencies spike, as creditors get aggressive. Dynamic Business

There’s been a strong rise in the number of businesses entering external administration (EXAD) for the three months to September, as poor sales and increased creditor activity takes its toll.

Data released by the Australian Securities and Investment Commission (ASIC) showed that each month of the quarter saw a consistently high number of EXAD appointments, resulting in a higher quarterly total compared with both the June 2011 quarter and the same period last year.

For the three months to September 30, there was an 11.5 percent rise (2,961) in EXADs compared with the previous quarter, and an 18.5 percent rise over the same period last year.

According to ASIC senior executive leader of insolvency practitioners Adrian Brown, there have now been two consecutive quarters where appointments exceeded 2,600 – with the quarter ended December 2008 being the only other occasion this occurred recently.

“For the calendar year to date, companies entering EXAD increased 9.6 per cent compared to the same period last year.”

According to CreditorWatch managing director Colin Porter, these figures demonstrate that businesses need to be extra vigilant with both new and existing customers.

“Not only do you want to be performing credit checks to ensure a potential customer is solvent you should be monitoring all your clients for any adverse changes.,” he told Dynamic Business.

Figures show creditor-initiated court liquidations (+33.7 percent) and receivership appointments (+12.7 percent) drove the quarterly increase in EXAD appointments over the previous quarter.

Brown said the trend towards creditor-initiated court liquidations supports feedback from insolvency practitioners that “they’re seeing more activity as creditors, including the Australian Taxation Office, and various workers compensation insurers, continue to tighten up on debt recovery.”

Porter said CreditorWatch is seeing a rise in the number of cases in which businesses have been extending credit to a company in financial stress, when they could have cut their losses earlier.

“As a business owner you want to know as early as possible when a customer goes into administration. The last thing you want is to be trading as normal with a customer that is in administration and potentially adding to the amount that they already owe you.”

Appointments of receivers/controllers by secured lenders increased in NSW (+ 21.5 percent) and remained at high levels in Queensland.

LB
Lorna Brett
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