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Insolvencies: trending up over the long-term

The rate of business failures has more then doubled over the last 15 years according to the Jones Partners Insolvency report.

The findings of the report conducted by economist Christopher Nadarajah and consultancy IBIS World were published by NewsCorp Australia this week. The report finds that 3.4 per cent of all businesses were placed into administration, receivership or liquidation in the year to June 30 2013. This is up from only 1.5 per cent in the 2000 financial year.

In raw figures, there were 10,746 insolvencies reported in the 2013 financial year compared to only 6,500 in the 2004 financial year.

Small businesses are major victims, with 81 per cent of nation-wide insolvencies in the 2013 financial year involving companies with less than 20 employees. Of those companies, 85 per cent had assets less than $100,000 and 43 per cent had liabilities of not more than $250,000.

While the failures of large companies in the 2013 year resulted in about 6,250 job losses, the majority of losses came from the failure of smaller outfits. According to the report, small company failures resulted in about 74,000 job losses in the 2013 financial year.

Businesses in the construction, retail trade and personal services sector were most at risk of failure. Insolvencies in these sectors accounted for 60 per cent of total insolvencies.

Figures from the Australian Securities and Investment Commission bear out the growing increase in insolvencies over the last fifteen years. However, this trend may be beginning to plateau.

The March quarter of the 2014 financial year recorded only 2014 insolvencies. This is the lowest quarterly result since March 2008, before the global financial crisis struck when 1,746 insolvencies were recorded.

Managing Director of CreditorWatch Colin Porter said that the amount of insolvencies had returned to 2006 levels but this did not mean that business conditions were good.

“In a downward market such as the GFC organisations are proactive and will pursue and windup a company which has certainly been the case over the last five years,” he said. “With 25,000 subscribers we have a pretty good indication when we look at our data on the amount of companies that are having defaults registered against them. In the SME community, business is still struggling and cashflow is tight.

“The next six months will certainly be an interesting period of time where we can collate more statistical information about the welfare of Australian business.”