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Increases In Insolvency Statistics and Trends from ITSA and ASIC

The Insolvency and Trustee Service Australia (ITSA) released its quarterly insolvency statistics on 12 April 2012, and the results show that the first three months of 2012 were indicative of continued economic pressures, seeing an increase across the board in bankruptcies and debt agreements.

These statistics reflect a number of interesting points. Firstly, they point to the economic issues that continue to trouble the global economy, and that the effects of the European debt crisis continue to be felt here in Australia. While certain aspects of our economy are growing, particularly mining, other sectors continue to struggle, such as retail and manufacturing.

These statistics also show that creditors are becoming more active in recovering debts via bankruptcy proceedings as opposed to enforcement warrants and garnishee orders. While bankruptcy proceedings are not always the best method of recovering debt, the appointment of independent trustees to administer the estate of a debtor is often a preferable method of obtaining a resolution to outstanding debts, particularly where there are concerns regarding possible attempts to defeat creditors.
is undesirable for a beneficiary to be absolutely entitled – for example, where he or she is young, or suffers from a drug or alcohol addiction, or is simply not good at managing money.

It is also clear that debtors are becoming savvier in how they can deal with debt. With economic conditions continuing to trouble many people, options such as debtor’s petitions are increasingly attractive, allowing for a resolution to multiple debts within a realistic timeframe, which ultimately allows debtors to move from under the cloud of compounding obligations. The ability to finalise and discharge all debts due and owing to creditors is an attractive alternative to consolidation of debts through finance, which often only delays the inevitable.

Additionally, ITSA has started publishing statistics by postcode, and from the previous 2010-2011 numbers, Queensland has the dubious of honour of five of the top ten worst suburbs. Toowoomba came third on the list which also included, Bundaberg, Southport, Nerang and Hervey Bay. Campbelltown in NSW was the worst suburb nationally.

Similarly, the Australian Securities and Investments Commission (ASIC) releases statistics relating to insolvent companies with particular emphasis placed on industry averages. In the last financial year, the construction industry was the hardest hit, lodging the most reports from external administrators. Of particular note, over 77% of these companies employed less than 20 staff and the top three stated reasons for failure being poor strategic management of the business, inadequate cash flow and poor economic conditions. More concerning is the statistic that approximately 85% of companies had less than $100,000 in assets available which lead to around 97% of recoveries realising 11cents to the dollar or less.

The problems facing the construction industry are well known and are largely indicative of Australian business in most industries. These statistics show that creditors must act decisively when dealing with debtor companies; any delays are likely to diminish the possibility of a return. Similarly to instituting bankruptcy proceedings, creditors chasing debtors over $2,500 should seriously consider issuing statutory demands for payment as a mechanism for quickly resolving outstanding debts. The costs of a subsequent winding up application are payable as a priority by liquidators to the petitioning creditor, which helps to minimise the risks associated with bringing the application.

Creditors should take the following information away from the ITSA and ASIC statistics:

We can also prepare the documents required to ensure that control of the trust is transferred in accordance with your wishes following your death. Depending on the terms of the trust deed, you may be able to appoint a successor trustee and/or appointor by your will. If this is not provided for in the trust deed, then it may be necessary to execute a deed of variation.

For more information, please read the article Control of Trusts and SMSFs.

• Economic conditions continue to put pressure on all businesses, and cash flow is a major contributing factor to the failure of many businesses, particularly smaller businesses;
• Recovering outstanding debts is an important mechanism for ensuring steady cash flow;
• Bankruptcy options such as creditor’s petitions are important tools in recovering debts in excess of $5,000 from individuals;
• There are relatively cost and time effective processes for recovering debts in excess of $2,500 from registered companies;
• Both options will ensure that an independent trustee or liquidator is appointed to thoroughly investigate the financial situation of the debtor, with a view to satisfying all creditors, as well as upholding a duty to investigate any impropriety on the part of debtors or their directors (should the case warrant);
• It is always advantageous to any creditor to take the steps to bring enforcement proceedings, as these legal costs are often payable as a priority from the assets of the debtor.

Likewise, if you are currently fending off creditors, please note:

• There are always options for resolving debt without making matters worse;
• Directors voluntary winding up, voluntary administration, deeds of company administration and personal debtors agreements are all mechanisms in place to assist companies and individuals to seek assistance from trustees or liquidators in realising debts;
• Seeking legal advice before a bad situation gets worse can increase the likelihood of reaching a resolution with creditors that is acceptable to all parties.

If you are having issues with creditors, or you are struggling to chase debts, contact Rostron Carlyle to discuss how we can assist.