June the second worst month for insolvencies on record as collapses jump 21%

Company collapses leapt more than 21% in June, with 1,027 companies entering insolvency in what was the second worst month for collapses since statistics started being collated in the early 1990s.

Almost 10,000 companies entered external administration in the 2011 financial year, an annual increase of 5.9%, as the Australian Taxation Office continues to crack down on SMEs and financing continues to challenge business.

Figures released by the Australian Securities and Investments Commission yesterday show there were 9,829 external administration appointments in the year to June 2011, up 5.9% from the 9,281 recorded in the previous year.

They also show that June was a particularly busy month for external administration appointments, with the increase rising from 4.4% in the 11-month period to May to 5.9% over the course of the month. The 1027 companies entering external administration in June 2011 is 21% higher than the 848 the previous June.

Insolvency expert Cliff Sanderson, director of liquidator Dissolve, says there have been three monthly insolvency records so far in 2011, and this is likely being driven by collapses in the building industry, particularly smaller- and medium-sized businesses.

“Anecdotally, it’s the small construction firms so the traders, the builders, the plumbers,” Sanderson says.

“Many have long outstanding tax debts, and many are shutting up shop and going to work for someone else.”

He says for many, it’s simply too hard to make a profit in that industry, particularly amid reports of delays in payments.

SmartCompany reported last week that more than 85 companies had either entered administration, liquidation or been hit by a winding up notice over the past month in Victoria and New South Wales alone.

Sanderson says the ATO crackdown is the number one factor in the rise in insolvencies. “They’ve come out of the woodwork in the past six months and are pursuing old debts,” he says.

“The extended terms from the GFC are over, and if people defaulted on the original agreements, new ones aren’t being given.”

Court liquidations rose 7.7% over the year to 2,653, while voluntary liquidations initiated by directors lifted by 10.1% to 4,337. Receiverships and voluntary administration (VA) appointments were lower at 1,346 and 1,486.

ASIC’s senior executive leader of the insolvency practitioners team, Adrian Brown, said the feedback it had received from insolvency practitioners was that “they’re seeing an increase in activity in the SME sector as the Australian Taxation Office tightens up on debt recovery. According to industry, finance availability is also negatively impacting business.”

State-by-state, Northern Territory recorded a whopping 37.5% increase in companies entering into external administration, followed by Western Australia (+17.4%), South Australia (+12.8), Victoria (+11.9%) and New South Wales (+3.5%).

And while Queensland was steady, it still accounted for 20% of all insolvencies.

Tasmania and the Australian Capital Territory recorded declines of 2.5% and 10.2% respectively.