SME insolvencies on the decline

The number of small businesses facing insolvency has declined according to figures produced by the Australian Securities and Investment Commission.

The figures show that insolvency notices have reduced dramatically since September with experts suggesting the trend is the result of improved lending practices on the part of the major banks.

In April, ASIC recorded a nation-wide total of 935 official insolvencies. The last time there were fewer than 1000 insolvency appointments for a given month (excluding January figures) was in December 2007.

The 2013-14 March quarter shows a total of 2,893 insolvency appointments as opposed to 3,722 appointments in the 2012-13 March quarter. The figures serve as a window into the SME sector, with the vast majority of businesses falling into that category.

Managing Director of CreditorWatch and publisher of Dynamic Business Colin Porter said the reduction was significant but did not necessarily reflect improved conditions for businesses.

“It’s clear to see that there is a reduction, a significant reduction of companies that are going into administration,” he said.  “I don’t necessarily believe that we can make a judgment call on business improving because the number of insolvency notices has reduced.”

Brendon Watkins, partner of restructuring and insolvency at Minter Ellison, also told Dynamic Business the trend could not be taken as a reflection of improved business conditions, although this might normally be the case.

Insolvency figures usually hinge on the behaviour of the banks, the tax office and other market place creditors. They are also subject to prevailing economic conditions.  While the taxman is often the single largest contributor to formal insolvency work, Mr Watkins said it was rather the approach taken by the major lenders that was responsible for the current trend. He said the tax office had actually returned to a business-as-usual approach after adopting a more conciliatory position towards distressed businesses during the GFC.

“I haven’t heard of there being any change in the taxman’s behaviour. There’s no question the lenders are a big piece of this puzzle,” he said.

Mr Watkins suggested the changed behaviour among the major lenders was threefold. 1) A greater reluctance to lose customers on account of a slower credit market. 2) Tighter lending practices and 3) fewer businesses facing difficulties.

“Firstly, the local market has been pretty flat in terms of credit growth. Their (the banks) books aren’t dwindling but they are not growing their books, so they are working very hard to not lose anything off the back end of their books and working much more closely with their customers. Part of it again is just percentages and numbers following the credit standard improvements post the GFC. They weren’t taking as much risk. Finally, the subdued lending has meant that as a percentage game, there’s less going bad.”

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