Insolvency numbers return to pre-COVID levels

The latest weekly corporate insolvency data, released this week by ASIC, shows that in the first four weeks of the new financial year, corporate insolvency appointments appear to have returned to almost pre-COVID levels.

“ASIC’s latest data shows that insolvency appointments for July have returned to pre-COVID levels, having sat at 50% below that point since March 2020, driven by the massive stimulus that the government put into the economy”, said ARITA’s CEO John Winter.

“The first four weeks of this financial year saw 674 appointments, compared with 697 in July 2019. By comparison, appointment levels for the same period in July 2020 were 341 and 385 in July 2021”.

“Of course, the period immediately pre-COVID saw record low levels of insolvency for that time, given our 28 years of preceding uninterrupted growth”.

“There's absolutely no doubt that this is being driven by the ATO finally taking appropriate recovery action against the mountain of debt and non-reporting they've built up,” said Winter.

“The ATO’s return to enforcement is essential and appropriate. It’s important that there is no unfair to non-payers of tax. That just hurts those businesses who are doing the right thing”.

“But how quickly we've seen a return to pre-COVID levels after they started that enforcement action has been quite surprising,” said Winter.

“It’s clear that the ATO is primarily signalling to company directors that they have to do the right thing. The ATO isn’t going to the point of shutting down businesses yet – there’s been less than 10 ATO-initiated windups so far this financial year. But it’s clear that directors are confronting an absolute reality that they’ve been trading a zombie company for some period and then taking the necessary steps to initiate an insolvency process themselves”.

“Anyone who runs a business that is in financial distress needs to get expert help early. The longer you leave it, the less chance there is to save your business and the less there is to pay out creditors if your business can’t be saved. There’s new options, including the Small Business Restructuring which let’s directors of small companies stay in control of their business while they work with a registered liquidator to save it.”

“It’s critical to get properly qualified advice and avoid dodgy advisers. Speak to your accountant in the first instance but then only ever seek insolvency and turnaround advice from an ARITA Professional Member,” reminds Winter.

“This rise in insolvency numbers is just a warning to every business owner to check on your own trading position including your cashflows, your reserves and the status of your creditors. Keep checking your health.”

“And while we talk about these numbers and trends in a macro sense, it’s important to remember that every business that fails involves people. It may be a zombie business, but it may also represent the life savings of a mum and dad. Financial distress is distressing. So, the other health to check is people’s mental health and we really urge business owners who are struggling to get good mental health support as well as qualified business support. Insolvency professionals see too much of this and a very large number of our members have undertaken “Mental Health First Aid” training that we jointly developed with AFSA and ASIC to help guide people through the challenges,” said Winter.

For media – contact John Winter directly at [email protected] or 0414 533 133

ASIC weekly corporate insolvency data