There is growing concern in business news and media about the increase in insolvency appointments. Many experts are warning that the country is going to see a significant rise in insolvencies following the pandemic.

 

What’s the cause?

The Covid-19 Pandemic and associated restrictions led to the introduction of measures to ensure that companies were still able to trade. The Australian Taxation Office hasn’t been chasing outstanding debts since 2020 and the JobKeeper wage subsidy allowed many companies to stay open. These measures lowered the number of insolvencies in 2020 and 2021, compared to what would be expected in a regular year.

The lifting of these measures is combining with recent activity by the banks who are beginning to claim unpaid debts and to raise interest rates. Other contributing factors to financial pressures are the rising cost of living, rising fuel price, supply chain delays, staff shortages and the Russia-Ukraine conflict. Companies are now unable to hide the fact that they are not solvent.

 

What’s coming?

The increase in court-ordered liquidation appointments seems to suggest that insolvency is on the rise. Court-appointed liquidations rose 114 percent in the third quarter of the 2021-2022 financial year, compared to the previous year.[1]

The ATO is actively chasing unpaid debts and has advised that it is issuing between 30-40 director penalty notices each day.[2]

We also see an increase in insolvency occurring quite drastically in the construction industry. Many large construction companies are unable to cover increasing costs under fixed price contracts. This may be replicated in many other industries.

If England is any indicator of what is to come for Australia, the 60 year high in insolvency appointments is very concerning.[3]

 

What can you do about it?

Now is a great time to check through your finances and ensure that your company or business is solvent. If you have received a statutory demand, bankruptcy notice, director penalty notice, creditor’s petition, winding up application, or any other demand, summons or claim, you must act quickly as the different regimes all have very tight timeframes in which you must respond.  If you have received any of these documents or you have any other concerns, please contact us to seek legal advice to determine what steps should be taken.

 

***Assisted by Bronte Johnson***

 

[1] King; https://www.accountantsdaily.com.au/business/17110-insolvency-drought-about-to-break

[2] Cathro; https://www.mondaq.com/australia/insolvencybankruptcy/1195816/insolvencies-to-spike

[3] Cathro; https://www.mondaq.com/australia/insolvencybankruptcy/1195816/insolvencies-to-spike