Why a record number of companies are going bust

By Leith van Onselen

ABC’s The Business last night screened an interesting report on the increasing number of corporate insolvencies, whereby up to 30 companies a day are reportedly going bust.

According to the report:

• A record 10,800 companies entered into liquidation in the 2012 financial year, up from around 4,200 in the 2000 financial year.
• Andrew Needham, an insolvency practitioner at HLB Mann Judd, says its the longest period of sustained lack of business confidence in at least 20 years.
• Building and construction, specialty retail, and manufacturers are most under stress, with both large and small firms failing.
• Many insolvencies are being caused by rulings from the ATO.
• However, ASIC claims that the ratio of insolvencies are trending in line with historical norms at roughly 6% of new company registrations.

A quick glance at the ASIC insolvencies data shows that insolvencies did indeed spike in the 2012 financial year. However, they declined throughout 2013, with 10,645 insolvencies reported in the year to May 2013 (see next chart).

Moreover, whilst the trend in insolvencies is indeed up, the number of company registrations has also increased significantly, from around 1.2 million in 2000 to around 2 million today.

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