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Recent data shows that business-related personal insolvencies have risen with the big banks remaining vigilant with court recoveries.
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Personal insolvencies for business owners spike amid rising pressures
15 April 2024
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A combination of higher commercial rents, higher operating costs and tougher debt collection activities from both the ATO and banks has seen a recent increase in business-related personal insolvencies.
The latest statistics from the Australian Financial Security Authority (AFSA) indicate that while the total number of personal insolvencies fell in February, business-related insolvencies were up 17 per cent from January.
They are also up by a third from the same month last year, according to the AFSA statistics.
Rising land taxes and higher interest rates are forcing many Australian landlords to hike up rents on commercial properties, adding to cost pressures for small business, according to turnaround specialist Jirsch Sutherland.
“It’s having a real domino effect,” said Jirsch Sutherland Partner Malcolm Howell, a registered liquidator and bankruptcy trustee.
“Small businesses already under fire from the ATO and banks, not to mention facing higher operating costs and superannuation requirements. The stark reality is that the expenses involved in running a business and retaining staff is proving challenging for many.”
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The latest Alares Monthly Credit Risk Insights for March indicate that insolvencies spiked at their highest level in many years and are now more than 50 per cent above pre-Covid levels.
Alares said both the ATO and the major banks also remain active in Court recoveries.
“Court actions filed by the big four banks in March remained above historical monthly levels,” it said.
Howell said there is now a much greater risk of personal assets being exposed, as often business and personal assets are intertwined.
“I urge business owners to start monitoring their own position even more closely and consider whether their business and personal assets are protected,” he said.
“If you are in financial distress, remember there are now more options than ever before, like the Small Business Restructuring (SBR) process – particularly if you seek help early.”
The latest Alares report shows that SBRs continue to account for a growing percentage of all insolvencies, spiking in March amid mounting pressure from the ATO.
“As the ATO continues to disclose overdue tax debts, as well as issuing directors penalty notices and warning letters, more small business owners are turning to the SBR process for relief,” said Alares Director, Patrick Schweizer.
“Small business lending often involves security over the business owner’s home or other personal assets. These assets can be at risk when the business faces financial hardship. We have seen a marked increase in small business failures evidenced by the recent spike in SBR appointments.”
For those businesses that don’t meet the SBR criteria, Howell said another option could be voluntary administration.
“It provides an opportunity for a business to continue trading, while giving the company breathing space and address outstanding debt in a more orderly manner,” says Howell. “VAs can be an excellent business rescue solution. It takes the pressure off the directors and gives the business the best chance of survival.”
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