Maybe ASIC’s career bureaucrats should get out of the office and talk to a few insolvency specialists who are actually at the coalface. They say the figure is even less than what the ASIC report found. Stirling Horne, a partner at Melbourne accountancy Lawler Draper Dillon, says: “For a company to go into voluntary administration and trade out of its difficulties is probably five out of 100,’’ Horne says.
“I would have thought that in 50% of those, some nucleus of the business is sold on. Certainly the company itself may go into liquidation but the business itself will continue in some form or another.
“What happens is you have a look at these companies and you make up your mind whether they can be saved or trade out of their difficulties. The difficulty with a lot of smaller companies is that the cost of doing a trade out because the administrator needs to have control of it and incurs a lot of ongoing expenses.
“On top of that, the customers often get wary of dealing with a company that’s in administration and so there are a number of factors that work against it.
“I have been involved in some that have traded on and paid 100 cents in the dollar and lived another life but there wouldn’t be many out of 100 where the company has actually traded out of its difficulties.”
The big problem, he says, is that it is harder to sell a business in voluntary administration now than it was the GFC. People simply aren’t investing anymore because of the economic uncertainty. And that means one thing: these businesses are more likely to go from voluntary administration into liquidation.
“Before the GFC, in 2007 and earlier, it was very easy to sell a business because people at that time were looking for revenue. I can think of a few I was involved in the 2000s up to 2007 where you were inundated with people who were interested. They weren’t interested in the company. They were interested in the revenue because they thought they could add it to their own revenue,” Horne says.
“All of that has disappeared. Today, you really struggle to get someone who is willing to come in and get invoked in the company.”
Andrew Beck, a partner at receivers and administrators RSMI, says it is a lot more difficult now for administrators to make a deed of company arrangement (DOCA) where the stricken company can keep trading, and which could attract buyers and investors.
“The VAs are now coming into companies that are more distressed. You are seeing this kiss of death,’’ Beck says. “People aren’t getting deed of company arrangements up – people aren’t prepared to invest. One of the problems in the business market is the lack of liquidity and the lack of confidence. People just aren’t investing in businesses.”
“All the bankers tell me there’s lots of cash, deposits are increasing and there’s money there but people aren’t prepared to take the punt because they’re not sure where everything is going with the economy worldwide so there is no appetite for investment through a DOCA. Things are a lot harder out there than what some people say.
“People years ago were more receptive to the idea of doing a compromise with the creditors, putting a deed of company arrangement in place, raising funds and trying to get the business going again. Investors might be company directors, or creditors or independent industry-type people who understood the business. It’s not happening now.
