Small business insolvencies hit record high as ATO cracks down
Monday, April 30, 2012/
Small business insolvencies have reached record levels with the number of companies placed into external administration in February at the highest level since the statistics were introduced in 1999.
Australian Securities and Investments Commission statistics show 1,123 businesses were placed into administration in February, compared with 518 in January.
The previous highest figure was in March 2009 when 1095 businesses went into administration.
The ASIC figures show a marked increase in businesses being wound up through the courts, which reached a record of 449 in February compared with 79 the month before.
According to Andrew Fielding, partner at insolvency firm BDO, the rise in insolvencies is mainly being driven by the Australian Tax Office pursuing outstanding taxes.
“What we are seeing is that the tax office is extremely active and that has an impact in these statistics such as court liquidations, creditor’s voluntary liquidations and voluntary administrations,” says Fielding.
“What you normally find is a director will put a company into voluntary administration or a creditors voluntary administration to avoid a personal liability.”
Fielding says the rise in insolvencies is part of a cyclical process.
“When you go through a period like we have for the last two or three years with a lot of receivership work, you then have a spike in windings up and court liquidations then, down the line, I predict there will be a spike in bankruptcies,” says Fielding.
“Trends wise we are starting to see a lot of bite in the retail area and smaller businesses and a flurry of restaurants and takeaway places entering into insolvency.”
Peter Strong, executive director of the Council of Small Business Australia, told SmartCompany it was important to remember the figures referred to people not just insolvencies.
“I think for the causes of insolvency you have to look at the type of industry,” says Strong.
“If it is retail you will find the cause is high costs, which continue to go up as sales go down.
“Those costs include rent, wages and changing competition from the internet and I would suggest it is also the continuing impact of poor town planning which makes it hard for people to survive.”