Jones Partner
 

Beneath the Insolvency Statistics

29/05/2014 by Bruce Gleeson

Whilst the headline statistics released by ASIC [for corporate insolvencies] and AFSA [for personal insolvencies] always make interesting reading and helps us understand correlations between the national / state economies and insolvency levels, looking beneath these statistics also reveals critical details about the most frequently used type of corporate insolvency administration, as well as the most commonly used personal insolvency option.

Corporate Insolvencies

corporate-insolvencies

So why have CVL’s been the tool of choice since late 2007:

  • VA’s were first introduced in June 1993. At this time the Australian Taxation Office (“ATO”) introduced the Director Penalty Notice (“DPN”) regime.
  • At the time the DPN regime was introduced one of the only ways directors could effectively avoid personal liability using the external administration process was to use the VA regime. This was due to the CVL laws not enabling the company’s liquidation to generally be commenced in sufficient time whereby such liability could otherwise be avoided.
  • As a result one could argue that many SME’s were not necessarily making the best use of the VA regime. However, in late 2007 the Corporations Act was amended to give immediate effect to the special resolution made by shareholders such that the company commenced from that point. (Section 493)
  • Accordingly, since that time the CVL regime has been increasingly used particularly when the ATO is using the DPN regime. It should be borne in mind that the VA regime is also a costly process and has not since its introduction overcome other challenges (i.e. Ipso Facto clauses and guarantee related issues). As such it quite often is not viable for SME’s particularly when the directors leave it late in the day to get professional advice.

Other points of relevance

  • In 1999/2000 CVL’s accounted for approximately 15% of total corporate insolvencies whereas VA’s accounted for approximately 36%.
  • However, in 2012/2013 CVL’s represented approximately 47% of total corporate insolvencies, whereas VA’s represented approximately 14%.
  • ASIC statistics from 2009/10 to 2013/14 reveal that almost 80% of company external administrations involve businesses with less than 20 full time employees and 85% have assets of $100,000 or less.
  • For smaller SME’s affordability in dealing with their financial position is a real issue. It will be interesting to monitor this dichotomy and whether any legislative reform might provide a better framework to deal with SME insolvency.

Jones Partners has 4 Registered Liquidators all of whom have a depth of experience in advising directors and shareholders of SME’s when they are in financial difficulty.

Personal Insolvencies

personal-insolvency

Bankruptcy -some key observations:

  • For the March quarters 2012 to 2014 individuals that voluntarily entered into bankruptcy accounted for approximately 91% of all bankruptcies. This suggests that unsecured creditors are and remain cautious about taking individuals (debtors) via the Court process to otherwise have them declared Bankrupt.
  • Based on recent AFSA statistics released, Personal Insolvency Agreements (“PIA”) or Part X’s recorded the lowest number in the March quarter 2014 since March 2007. Also, Bankruptcies increased 3.31% in the March quarter 2014 compared to the March quarter 2013.
  • During 2012/13 Registered Bankruptcy Trustees and Registered Debt Agreement Administrators held on trust a total of $497.46 million. Of this $192.7 million or 39% was paid in dividends. Compared to 5 years ago at June 2008 funds held on trust amounted to $249.12 million and $91.6 million or 37% was paid in dividends. The doubling of monies held in trust has occurred at the time where numbers of Registered Bankruptcy Trustees has remained steady.

At Jones Partners we have 2 experienced Registered Bankruptcy Trustees who regularly act where individuals are considering voluntary bankruptcy. We are also hopeful of having another 2 Registered Bankruptcy Trustees before the end of 2014 to enhance our capability to provide personal insolvency services to individuals throughout NSW and Australia.