Insolvencies soar 14% in August, second-highest reading on record

The number of companies entering external administration jumped nearly 14% to 1,049 in August, the second-highest reading on record, new figures show.

The figures, released by the Australian Securities and Investments Commission, come as small business owners face difficult market conditions, staffing issues and access to finance.

New South Wales, Victoria and the Northern Territory recorded the biggest jumps in insolvencies, with Western A and Queensland generally more protected by their mining operations.

According to Taylor Woodings partner Michael Ryan, companies are trying to trade their way out of trouble rather than go into liquidation.

“You’re getting businesses that are starting to collapse that are still trading,” he says.

However, Ryan says the success rate for companies trying to turn their businesses around is fairly low.

“Voluntary administration is a good regime if it’s used early enough, but often it’s not,” he says.

According to ASIC’s statistics, companies entering into external administration reached the highest level in the June 2011 quarter since December 2008.

The figures show 2,656 companies entered external administration in the June quarter, compared to 2,275 in the March quarter.

NSW has consistently had the highest number of companies going into administration over the past 10 years, followed by Victoria and Queensland.

Ryan says the 17.4% increase in court wind-ups for the month of August shows the Australian Taxation Office is continuing enforcement action against businesses.

The ATO has denied it is the biggest liquidator of companies, recently noting it was responsible for initiating less than 11% of total wind-ups for the 2011 fiscal year.

However, the Tax Office has been open about the fact that it is taking firmer action following a period of leniency, which occurred during the global financial crisis.

Greg Charlwood, managing director of debtor finance provider Bibby Financial Services, says bad debts remain a major concern for small businesses.

Citing the latest Bibby Barometer, based on a survey of more than 200 companies, Charlwood says almost a quarter of business owners have experienced a bad debt in the past 12 months.

According to the report, 46% of small business owners have been forced to access personal savings in order to alleviate cashflow problems, while 38% have taken out an overdraft.

Almost two thirds of small businesses feel their bank requires too much security for their borrowings or overdrafts, while 22% feel their banks’ requirements are excessive.

Funding will continue to be an issue for small business proprietors over the next 12 months, with 21% intending to seek new funding and 19% looking for funding to provide working capital.