The number of Australian companies entering voluntary administration increased by 18% in the 12 months ending March, according to an analysis of data completed by FTI Consulting.
FTI Consulting analysed data from the Australian Securities and Investments Commission and found 10,299 companies entered voluntary administration in the 12 months from March 2015 to March 2016.
This is an 18% increase on the period from March 2014 to March 2015, when external administrators were appointed to 8,751 companies.
According to FTI Consulting, insolvencies during the period were dominated by large corporates, particularly in the retail and mining sectors. Among the high-profile companies to collapse in recent months were retailers Dick Smith and Laura Ashley, coal miner Peabody, steelmaker and miner Arrium and Clive Palmer’s Queensland Nickel.
Quentin Olde, senior managing director of corporate finance and restructuring at FTI Consulting, said in a statement low commodity prices appear to be continuing to place strain on miners and companies that offer related services. Likewise, insolvencies and profit downgrades in the retail industry indicate “noticeable signs of strain” on companies in that sector, he said.
“In recent profit announcements, all the big four banks have indicated that they have increased provisions for bad debts on specific clients including Dick Smith, Arrium [and] Peabody and also on a portfolio basis for SMEs and corporate-related debt portfolios,” he said.
On a state-by-state analysis, FTI Consulting found the largest increases in insolvencies in Western Australia (up 36%) and Queensland (up 23%) for the same 12-month period. The only state to record an decline in the number of insolvencies was Tasmania, where the number of appointments declined by 6%.
Payment defaults also on the rise
Colin Porter, founder and managing director of CreditorWatch, told SmartCompany it can be difficult to identify the flow-on effects of large insolvency events on smaller businesses within a given sector, saying it will often depend on the type of appointments, as opposed to the volume. The total volume of insolvency appointments is made of up voluntary administrations, as well as wind-ups initiated by the Australian Tax Office, courts and creditors.
However, Porter says CreditorWatch has witnessed an increase in both the volume and value of payment defaults over the past 12 months.
Year-to-date, CreditorWatch data shows the volume of payment defaults has increased by six percent and the volume of payment defaults has increased by 12%.
“What that potentially shows is that while people are still growing their businesses, they are taking on more risk,” he says, adding this can increase the exposure of smaller businesses to the effects of insolvency events in their sector.
“When it does wrong, it’s worse,” he says.