'Topical Issues'

Watch out – the Banks are coming! Some of you will have had a look at the first Business Stress Report or my summary in my blog. We release the full Business Stress Report quarterly. In the intervening months, ASIC updates its Monthly Insolvency Statistics. The December numbers came out recently. We’ve analysed the numbers and again there are some surprises.

Our Press release said: “Our research shows that in the calendar year 2008 the number of corporate insolvencies has predictably increased, being up 27%. 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.”

Some details:

• The number of companies entering some form of insolvency administration in the 12 months ended December 2008 has increased to 9,113 which is a 27% increase over the average of the previous 5 years.
• The number of appointments by secured creditors, most commonly receiverships, more than doubled in 2008. They are up 105% 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% increase on the average for the past five Decembers.
• December has extended the record bad run of corporate insolvencies – each of the 8 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 to an average $3.7 billion for the previous five years.

There is a big surprise there. 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. So are the Banks happy to appoint a Receiver? Never. All Banks would say, and I believe them, that appointing a Receiver is the last option. They’d much rather a company come to them with workable plan.

So what does a Director do if faced with a Bank that is threatening to appoint a Receiver? First step is to call us. We have good relationships with all major lenders. But there is no magic pill. We need to have a look at your company and work with you to create a plan that we can take to the Bank. We know what Banks will be looking for and can help you save your company.