Insolvency data shows small businesses are still hanging on

The number of companies falling into administration continues to rise sharply in 2009, but insolvency experts say struggling small businesses appear to be hanging on despite the downturn.

New figures from the Australian Securities and Investment Commission show 810 companies entered external administration in April 2009, up sharply from the figure of 680 recorded in April 2008, but down 25% from the 1,095 companies who fell into administration in March.

Jim Downey, insolvency expert from JP Downey & Co, has just returned from what he calls the annual “undertaker’s picnic” (otherwise known as the Insolvency Practitioners Association of Australia’s annual conference) in Perth, and says there appears to be a split between the big and small ends of the market.

“I think the large firms have a lot of big work on. The word on the ground is that the smaller firms are relatively quiet – which indicates the SME market is hanging in there.”

Downey says that while there is plenty of inquires about insolvencies services from small business, actual work is taking longer to flow through the pipeline than many expected.

“Lower interest rates have probably saved a lot of people from disaster. I think there’s been a fair bit of latitude shown by the ATO and certain banks and these smaller operations are hanging in there.”

Michael Fingland, managing director of turnaround firm Vantage Performance says the Government’s stimulus measures to support consumer spending and the building sector have also helped carry SMEs through the last few months.

But he believes the Australian economy is in the “eye of the storm” and expects a rush of insolvencies in the later half of the year when the impact of those stimulatory measures is over.

“I think we’re in the eye of the storm. Building and consumer spending is what drives any economy and any recession and next quarter we’ll see that the effects of the stimulus packages had petered out.

“I think everyone is getting a bit excited about recovery. These stimulus measures were like throwing a bucket of water on a bonfire.”

Jim Downey agrees that SMEs are not out of the woods yet. “Come what may, there is some sort of cleaning up of the forest floor.”