Insolvency figures rise in June as recovery stalls

The number of businesses falling into insolvency increased 4% in June to 848, as SMEs continue to struggle with weak consumer spending and tight credit conditions.

While the number of insolvencies in June fell from the 914 recorded during May, the managing director of accountancy group Taylor Woodings, Michael Ryan, says the monthly decline isn't a sign that the wave of SME collapses will stop.

"These June figures are higher than the June figures last year, and this year's May figures are higher than May last year. We looked back at the statistics over the past 10 years, and these are the highest May and June insolvencies over the decade."

He claims businesses have been attempting to hold on during the global financial crisis and are now just running out of steam.

"This is the sign of a lot of built-up pressure in businesses in Australia. That pressure is coming from costs of living, consumer demand, and tight liquidity within the banking sector."

"It is still extremely difficult for SMEs to obtain working capital, and so these insolvencies are the results of a long period of pressure on those businesses. Really, there doesn't seem to be any light at the end of the tunnel."

The figures from the Australian Securities and Investments Commission show New South Wales recorded the highest number of collapses at 337, up from last month's count of 332. Victoria came in second at 204, followed by Queensland at 196.

Ryan says outlook is bleak. The end of the Government's stimulus is long past, the federal election is making businesses nervous and retail sales show no sign of recovering any time soon.

"I think we're going to continue to see this level of insolvency at least through the end of the year, if not even further beyond that. We do see fluctuations month to month, but these are historic highs and not much is going to change that apart from major economic forces."

Until retail sales pick up and the global economic environment improves, Ryan says businesses are in for a fairly long fight and they need to survive as best they can.

"I don't see what's going to change things overnight. We are in tight credit situations and that's really driving a lot of businesses down, with confidence and so on."

"So when we start seeing more credit flowing, that will get a lot of businesses out of the cycle. But there are other factors including retail and housing approvals, and we need to wait for those to pick up."

• Revealed: How the Rolls-Royce lifestyle of Refund Home Loans founder Wayne Ormond brought the business down
• Legal adviser slams “nightmare” business and property register
• Small business insolvencies hit record high as ATO cracks down
• Parts supplier CMI collapses with 250 jobs at risk
• San Marino smallgoods and Black Opal Licorice fold

...
written by Tim Lea, August 05, 2010

I tend to agree with the above analysis that we are far from being out of the woods yet. With the heavy austerity measures being seen in Europe the opposite effects could be seen internationally than that seen of the governmental stimulus packages. In tandem with sovereign difficulties (Greece, Spain Portugal and Ireland) the international economy is not looking too rosy. Whilst the resources sector appears to be doing well for us here the "real" Aussie economy is in a very fragile state. When this is considered against a backdrop of a very cautious banking sector I think there could be a few nasty surprises around the corner. Whilst we are successfully finding pockets of funds for our clients to help finance their growth ambitions, there is a general air of caution around........which doesn't bode well for an expansive economy.

I hope I am wrong but I believe we will see the Aussie economy come back close to zero growth over the next 3-6 months....with a double dip seen overseas......

Good luck to all.

Regards

Tim Lea