Insolvency experts say the number of company collapses will continue to grow over the next six months as troubled businesses fail to survive after the Christmas rush and banks become more willing to try and sell struggling companies on the open market.
The warning comes after figures from the Australian Securities and Investments Commission show the number of businesses that collapsed in the year to September jumped by 12% compared to the same period a year earlier, to 7,212.
The new figures also show 744 companies were placed into administration during September, an increase from August but a decline from the March high of 1,095.
Sule Arnautovic, insolvency practice partner at Jirsch Sutherland, says the figures are set to increase in the New Year, as struggling companies realise the Christmas sales period fails to save them.
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“Absolutely, retailers will especially try to hold on in the expectation that Christmas and New Year sales will get them through. What you’ll find, then, is that in January and February those sales won’t have delivered and a number of businesses will fall.”
But Arnautovic also says businesses considering shutting down before Christmas should hold on for a few more months, as a good sales period could help a business survive.
“If you’re in a retail business, then for sure hold on and see what happens. But if you’re in another industry such as building and construction, the low residential stuff, then you’re probably stuffed.”
Arnautovic also rebuffed claims recent drops in asset prices will result in a growth in the number of companies being placed in administration. Some analysts claim lenders will be more willing to place assets on the market due to a focus on recovery and an increase in buyers.
“Certainly, there are a lot of people looking for distressed assets and selling bottom dollar. But I also think it’s becoming hard to get the finance to do it, and confidence is not exactly sky high.”
Jim Downey, principal of Downey & Co., also questions whether the number of buyers looking for bargain assets will grow.
“I don’t know that I’m expecting anything. I do ask myself whether the banks and buyers are now going to move in, as there’s a fairly robust market out there. But I can’t say whether they will… although there is an incentive now to buy.”
Arnautovic also says the number of insolvencies will grow as the economy will take longer than expected to recover from the downturn.
“I’m a bit uncertain there’s going to be an immediate recovery. My view is that things are starting to slow down now, and I expect that slowdown to continue through the first quarter of next year.”
“I think we’re still in for a little dip in terms of confidence. So from now until the middle of next year, I expect insolvency numbers to grow.”