Insolvencies to keep rising in 2014 as small business continues to feel the pain, expert warns

The current state of insolvencies in Australia is the worst seen in recent history, but brace yourselves – the economy is set for more pain.

While the insolvency figures from the 2012-13 year are not yet finalised, figures for the first 11 months show insolvency appointments reached 14,452 – up by 183 from the same period in the previous year.

A large chunk of these insolvencies come from industries most exposed to deteriorating conditions, such as manufacturing, construction and retail. A large chunk are placed into insolvency by the Australian Taxation Office, once it ascertains a company isn’t about to maintain its debt payments.

But even five years after the global financial crisis, insolvency experts say the pain isn’t yet over.

“It’s a bit of a strange one, because last year it appeared as though insolvency figures may have peaked,” Dissolve liquidator Cliff Sanderson told SmartCompany this morning.

“But in April and May of this year, they were the highest April and May on record. So it’s been bubbling along at a high level, sometimes going upwards or slightly below the peak.

“But they are stubbornly refusing to go down.”

SmartCompany has covered several company insolvencies this year, and many of them have been larger businesses. Most recently, photography business PixiFoto collapsed with 300 jobs lost.

However, most of them have been smaller businesses – last week, a $6 million menswear company founded in 1936 was placed in administration.

Sanderson notes insolvencies tend to peak about four years after a financial calamity occurs. Given the brunt of the financial crisis occurred over more than four years ago, Sanderson says we’re likely to see more pain over the next year.

“Likely, this will continue for a while and will bounce around at quite high levels,” he says.

“We’re sometimes going to have really good months, then really bad months. At the end of the day, it’s really up to how aggressive the ATO is being.”