Beautiful One Day, Insolvent The Next- Record bankruptcies and insolvencies rock business confidence
Written by: Caeli Lovell, Special Counsel at Lovegrove Solicitors
Former property hotspots like Queensland’s Gold Coast and the Tweed Shire in Northern NSW have been hit hard by the sluggish economy. The Insolvency Trustee Service of Australia (“ITSA”) has broken down personal insolvency statistics by region for the first time, identifying more than 1917 personal bankruptcies in those beachside havens during 2010-2011.
Major liquidators SV Partners confirmed the gloomy outlook for the QLD/NSW border region, with Director Terry Rose saying their figures show “the Coast is responsible for about 20 to 25 per cent over the state — that is fairly high.”
Mr Rose indicated that personal bankruptcies often rose when people had exhausted their personal credit cards to pay company debts. “It is not unusual when we get appointed to see personal credit cards being used to pay business debts and people just over-extend themselves,” he said.
Even multi-million dollar enterprises have had to scrape the bottom of the barrel to keep afloat. The recent collapse of budget airline Air Australia saw pilots using credit cards to buy fuel just so the planes could make it back home.
The ITSA figures only relate to personal bankruptcy, and do not take account of the soaring rates of corporate insolvency. Figures collated from data released by the Australian Securities and Investments Commission (“ASIC”) shows a record 10,544 companies entered into some form of insolvency administration in the year to January 2012. The highest ever number of insolvency appointments by secured creditors were made in the period (1386), with a record high 518 insolvency appointments in the month of January 2012 alone.
Insolvencies are not just rising in Australia, with recent austerity measures implemented across Europe accompanying a surge in business bankruptcies. Price Waterhouse Coopers (“PWC”) has reports an extreme 21 per cent increase in Spanish insolvencies over the first quarter of 2012. The grim business statistics come on the back of a 23 per cent unemployment rate, which PWC says is “pushing away any sign of recovery”.
Businesses can insulate themselves against some of the risks of customers defaulting, frequently a cause of insolvency. Business owners can detect high risk clients when undertaking searches of resources such as the ASIC company database. Additionally, searches of the new Personal Property Securities Act Register can show whether a client’s assets are encumbered by loans or other security interests.
More than ever it is important to carry out due diligence when extending credit or entering into contracts. Consult your solicitor at an early stage and benefit from assistance in drafting agreements, performing searches and locking in payment security.