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2017-2018 Insolvency stats revealed: QLD takes first place, NSW in second

Tuesday, March 12, 2019

The Australian Financial Security Authority releases their statistics for personal and corporate insolvencies in the previous financial year. The statistics are an interesting insight into the types of businesses most likely to enter insolvency, the major reasons why and whether those reasons are changing year-on-year.

 

Twenty nine percent (29%) of Australian personal insolvencies in 2017-2018 occurred in Queensland. At one percent (1%), the Northern Territory had the least personal insolvencies.

 

Bankruptcies were on the rise last year for the first time since the GFC. Since then there has been a steady decrease in bankruptcies, with the charts showing a corresponding increase in debt agreements. Debt agreements are an alternative to bankruptcy whereby creditors agree to accept a payment plan from the debtor instead.

 

Seventeen percent (17%) of people who entered insolvency (whether through bankruptcy or a debt agreement) cited that the financial downfall had to do with a business. We commonly see inappropriate business structures that do nothing to isolate and protect an individual’s assets from their business’ debts. Companies are often touted for their limited liability but the reality is that company directors often provide personal guarantees to significant suppliers or upon entering major contracts (a lease being the typical example).

 

Of the people who entered insolvency and did not cite the cause as business-related, thirty-seven percent (37%) said excessive use of credit facilities was to blame. Thirty-one percent (31%) claimed their financial position was owing to unemployment or loss of income.

 

As usual, more than 9 out of 10 persons who went bankrupt did so voluntarily by submitting a debtor’s petition, as opposed to the other 1 out 10 who were bankrupted by their creditors. These stats have not changed remarkably in recent years.

 

Corporate insolvencies were down for the third consecutive year in a row. The companies most likely to be rendered insolvent were conducting personal services businesses (in every state). Personal services were responsible for 37% of corporate insolvencies which is more than double that of construction business (at 17% of total insolvencies) and more than three times that of accommodation & food services (at 12%).

 

The statistics also show that the ATO has backed-off somewhat. The tax office commonly winds up companies that fail to pay tax or superannuation via the federal courts. The ATO’s massive liquidation surge in December 2014 which saw the ATO ramp up liquidations more than five-fold has levelled off and is returning to pre-2014 levels.

 

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