3370 5100

Many companies risking insolvency

Many ASX companies are struggling with their finances.

Last year, many Australian companies faced the risk of financial insolvency, according to a recent report from Certified Practising Accountants Australia (CPA).

The study found that close to a third of companies listed on the ASX were issued with going concern warnings in 2013, indicating a significant level of stress among Australian businesses. 

According to the report, the most high-risk industries were the mining and energy sectors, with 40 per cent of companies in these areas in a potentially hazardous financial position.

The majority of these warnings were among the smallest businesses listed on the exchange. Companies in the bottom 500 companies listed on the ASX were the most common, with half reporting a going concern warning in 2013. This compares to only 1.5 per cent among the largest 200 companies on the exchange.

Another point of concern is the difference that has emerged over time. The last time the number of warnings issued was approaching these levels was in 2008 during the global financial crisis, although even then the percentage of firms issued with a going concern notification only reached 22 per cent.

CPA Australia chief executive Alex Malley suggested that there are a number of reasons for the changes in market conditions for Australian companies.

"What this new report shows is that there has been a steady increase in going concern warnings among the middle and bottom ASX listed companies since 2011," said Mr Malley.

"We've been talking about the potential impacts of the slow-down in China, the strength of the Australian dollar and the effects of the tapering mining boom on the economy for some time."

With commercial conditions in Australia remaining delicate, any company that is facing tough conditions, or even insolvency, needs to discuss this development with an insolvency lawyer. They will be able to offer legal advice on this situation, along with any commercial agreements that need to be made as part of this process.