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After two years of limbo, liquidations are on the rise.
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Insolvency drought about to break
01 June 2022
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The latest figures showed liquidations are ramping up after the hiatus caused by the pandemic although there is “still some way to go” according to the Corporate Insolvency Index.
The index, produced by Insolvency Australia and sponsored by insurance broker PRM, showed total appointments were up 6 per cent for the third quarter of financial year 2021-22 compared with the previous period.
It found court-appointed liquidations rose 114 per cent compared with the same quarter in 2021, with creditors’ voluntary liquidations and controller appointments also higher.
Countering this were voluntary administrations down 35 per cent and an overall level of liquidations relatively low.
However, the director of Insolvency Australia said the pressure on business was returning to pre-pandemic levels.
“It’s certainly an indication that the insolvency market is heading towards normalisation – although there’s still some way to go,” said Insolvency Australia director Gareth Gammon.
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“The last couple of years has been one of limbo for our sector (although others might have a stronger term to describe it) – but various triggers suggest things are starting to turn around.
“Businesses are now under increasing pressure, the ATO is calling in its markers – as are the banks – and credit reporting agencies are gearing up.
“Every day we hear more about the ATO and its debt collecting – in particular, the issuing of Director Penalty Notices on a ‘daily basis’. The ATO has even said it is expecting an increase in insolvencies.
“And pressure points like supply chain disruptions, concerns about the Russia-Ukraine conflict, the election campaign, rising interest rates and cost-of-living spikes, not to mention the banks also starting to take action against unpaid debts, are creating what some are calling a ‘perfect storm’.
“We’re expecting the full-year figures to provide even more solid evidence of the changing market.”
NSW witnessed the most insolvencies over the first three quarters of 2021-22 according to the report, with 1,900 appointments. Meanwhile Victoria recorded 1,041, Queensland 857, Western Australia 324, South Australia 137, the ACT 133, Tasmania 19 and the Northern Territory four.
Of these, the most prevalent appointments were court windings-up.
Mr Gammon said the word from Insolvency Australia partners was that the first “wave” of liquidations will begin soon after the election and tax season, led by so-called zombie companies.
“We recently did a straw poll among our partners and the majority said that in 2022 they expect to see more matters but with lower average fees,” he said. “That could certainly point to the zombies and smaller, less complex matters being handled.”
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