Insolvency experts expect the high level of corporate collapses to continue, with an increase in repayment demands from the Australian Tax Office the final straw for many struggling businesses.
Quentin Olde, partner at accounting firm Taylor Woodings Partners, says recent figures from the Australian Securities and Investment Commission showing an increase in company collapses confirms his suspicions from late last year that the post-GFC rebound doesn’t have legs.
“2011 may a tough year for small business,” Olde told SmartCompany.
“I guess the expectation from our point of view is we’ll see a spate of business failures.”
Figures from the ASIC show the number of company collapses reached 1,491 in March, versus 1,299 in February and 640 at the start of the year.
The 1,491 figure is one of the highest figures released by ASIC since the late 1990s, and is a significant rise on March 2010’s figure of 1,313.
Olde says the Tax Office is taking a tougher stance than it has in the past, including during the GFC.
“It is, in some circumstances, a patient debtor, but there are circumstances the ATO seems to be drawing a line,” Olde says.
Beyond the ATO, Olde nominates the high Australian dollar and petrol prices, and expectations of further rate rises this year as pressuring small business.
He says that in some ways, it’s tougher for companies now than during the GFC, because during that period, the banks, creditors and the Tax Office stepped in with support.
He argues that in this multi-speed economy, there are several things that need to happen for that all-important confidence to return: an increase in credit availability, stability around interest rates and the Aussie dollar, and less turbulence in the global economy.
At the individual business level, he advises individuals to focus on cashflows, and wherever possible, keep that buffer in place for tough times.
Company liquidator Cliff Sanderson told SmartCompany it usually takes three or four years for a major shock to the sharemarket to filter through to insolvencies.
With the most recent downturn, Sanderson says the small company collapses have been spread out, with former Prime Minister Kevin Rudd to thank for preventing a widespread collapses.
Rudd told the ATO to be nice, Sanderson says, and while that no doubt saved some businesses, for others it merely delayed the inevitable.
“SME insolvencies are at a relatively high level and we expect them to stay there for at least another year,” Sanderson, of Dissolve Pty Ltd, says.
Sanderson also draws attention to RBA figures showing the dollar value of bad debts, as reported by the banks.
They are huge, he says.
For the December quarter alone, they were $5.6 billion, against previous figures of $4 billion for a year.
Sanderson agrees that the ATO’s newfound aggression is driving the figures.
He says about 60% of corporate windings up are now director-initiated because of ATO pressure to either repay the debt, wind up the company or have the director individually assume the liability.
“It was very generous for a couple of years, but eventually you’ve got to say to the corporate world: either pay your tax or don’t.”
“It was time to start collecting.”