Insolvency statistics up but with some surprises
February 11, 2009
The number of companies entering some form of insolvency administration has again increased, revealing the further deterioration in the health of corporate Australia, according to corporate restructuring specialist Restructuring Works.
The firm bases its research on the ASIC insolvency statistics, which are released monthly, and various Reserve Bank statistics released quarterly.
CEO Cliff Sanderson says: "Our research shows that in the calendar year 2008 the number of corporate insolvencies has predictably increased, being up 27 percent. The concern is that the growth rate in insolvencies is up even further in the last quarter and worse still in the last month of 2008."
The research reveals that:
- The number of companies entering some form of insolvency administration in the 12 months ended December 2008 increased to 9,113, a 27 percent increase over the average of the previous five years.
- The number of appointments by secured creditors, most commonly receiverships, more than doubled in 2008. They are up 105 percent on the average of the previous five years.
- The month of December 2008 saw 813 companies enter some form of insolvency administration. That is a drop from the 1,011 companies in November 2008 but traditionally December and January show the fewest number of companies being placed into insolvency. The 813 insolvencies is a 43 percent increase on the average for the past five Decembers.
- December has extended the record bad run of corporate insolvencies; each of the eight months to December were the worst on record (since 1999).
- The value of ‘all bank new assets impairment charges’ has more than tripled to $13.3 billion in the year to September 2008 compared with an average $3.7 billion for the previous five years.
Sanderson says: "I think everyone expected the number of corporate insolvencies to be up. The surprise is that secured creditors, mostly banks, are taking control of company assets far more commonly. They are appointing receivers more than twice as often as they have in the past.
"We also track the success rate in restructuring Australian companies that strike financial difficulties. We saw a slight improvement in what we call the ‘restructuring ratio’ but it remains a concern that only one in 17 companies that enter a formal insolvency procedure can restructure.
"Part of the reason for the poor restructuring ratio is the increasing propensity for banks to take control of company assets.
"The lesson for directors is that they need to be proactive, seek professional advice early then approach the bank with a solution, not the problem."
