3370 5100

Insolvencies continue to affect Australian businesses

Creditors are often losing out as a result of insolvencies.

Recent statistics from the Australian Securities and Investments Commission (ASIC) point to the many different ways that companies can experience insolvency in Australia. 

The study of over 10,000 insolvency proceedings within Australia found that in 2013-2014 the most common industry for insolvencies was in the business and personal services sector. Companies in this space made up over a quarter (26 per cent) of overall insolvencies in the last year.

Other industries that are recording high incidents of insolvency included construction and the accommodation sector. These two areas accounted for 23 per cent and 10 per cent of total insolvencies respectively.

The vast majority of companies that enter insolvency are also smaller firms. In fact, 81 per cent of the reports tracked by the ASIC study related to companies with fewer than 20 staff. This is up on previous years, with only 78 per cent in this category back in 2011-2012.

While the study tracked the number of insolvent companies in Australia, it also provides an insight into possible misconduct among company executives. The leading case of potential mismanagement related to insolvent trading, with 57 per cent of reports relating to this process.

Other common issues involved misdemeanours around the responsibility to keep financial records (37 per cent) and the care responsibilities of directors and officers.

For unsecured creditors, there was also some negative news to come out of the study. Companies and individuals that were owed money on average only received 11 cents in the dollar when a company was made insolvent.

For any company that is facing insolvency, it is important to get the right level of support. In this situation, it can be useful to speak with a contracts lawyer that has expertise in the field of insolvency.