Bankruptcies down as businesses struggle to pay court costs

Bankruptcies are at their lowest level in 17 years, new quarterly figures reveal, but rather than signalling improving economic conditions, experts believe it’s become harder for businesses to chase debtors.

The numbers released yesterday by the Insolvency and Trustee Service of Australia indicated the national number of new bankruptcies fell 13.9% to 4774 – the lowest number for the quarter since March 1996.

Total personal insolvencies also declined by 11.11% to 7214 compared with this time last year. The largest decline of personal insolvencies was in Tasmania, where 17.96% fewer people declared insolvency.

Insolvency experts offered varying opinions why the insolvency figures were reduced, with some believing the increase in court filing fees for creditors makes chasing debtors too expensive, and others believing the process of tracking down an individual person is too difficult.

Business recovery and insolvency lawyer with Lawler Draper and Dillon, Hugh Milne, told SmartCompany some lawyers are now recommending some creditors not pursue debtors because of the high court costs.

“I spoke to some other lawyers recently and there has been an increase in fees to wind up a company, which is proving to be an issue. People are now thinking twice about going to the next stage of the process,” he says.

The cost of Federal Court filing fees increased from $1983 to $4375 for listed companies on January 1 this year.

McKean Park Lawyers insolvency lawyer David Brett told SmartCompany the process of chasing debtors has become more expensive, but said businesses also find it a challenge to locate individual debtors.

“The costs in the courts have increased, but not outrageously so. It’s just getting harder and harder to track down individual debtors.”

“You ring up an estate agent trying to find a forwarding address and you’re unlikely to get it because people are afraid they’re going to be sued,” he says.

Brett says there is also a distinction between chasing a company and an individual over debts.

“You have to differentiate between a personal debtor and a company. In relation to an individual, there are a few more processes you need to go through and this makes the process quite costly.

“With a person, before you can start chasing them for debts you have to get a court order; whereas to wind up a company there just needs to be a debt of $2000.”

“With a person, it needs to be a debt of $5000 and you need a court order,” he says.