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Australian insolvency numbers are set to climb in 2022, prompting accountants to ensure they have appropriate solutions in place for clients.
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Accountants flagged on rising insolvency figures
17 December 2021
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10 minute read
According to Jirsch Sutherland, the number of Australian insolvencies is set to rise in the new year despite seeing a period of record lows for almost two years prior.
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Pointing to a report from trade credit insurer Atradius, the group noted global insolvencies are expected to increase by 33 per cent by the end of 2022, with fiscal support completely phased out by then in most markets.
"The result will be a ‘return to normal’ in insolvency levels – and Australia is one of three countries expected to have the highest cumulative growth in insolvencies," a statement from Jirsch Sutherland said.
"Italy is slated to have the highest level (34 per cent), while Australia and the UK will both have 33 per cent, Atradius predicts. Beyond 2022, Atradius expects that insolvencies will start to decline or remain constant, while zombie firms unable to survive without support will have already become insolvent."
Commenting on the trends, Bradd Morelli, Jirsch Sutherland’s national managing partner, said: “Zombie companies have been an issue around the world since governments introduced pandemic support packages. Without those ‘lifebuoys’, we’re expecting an increase in insolvencies as many zombies finally reach the end of the line.
“Overall, we believe there will be an increase in formal insolvency appointments next year, but the numbers will still be down on pre-pandemic levels. We’re coming from a very low base.
"ASIC insolvency statistics show that Australia’s formal insolvency appointments in FY21 were 7.2 per cent below the historical average, with court liquidation appointments plunging 72 per cent. Last financial year, 3,709 fewer companies went into external administration than on average, while in January 2021, companies entering external administration hit 22-year lows of just 192,” added CommSec senior economist Ryan Felsman.
Going forward, Mr Morelli said the stats represent a good opportunity for some professions, including those in accounting, to businesses hurt by COVID-19 restrictions, many of whom are SMEs.
“In August, the number of business loan deferrals increased nearly six-fold, from 600 to 3,500, with business owners unable to make their repayments,” he said.
“Some business owners have taken on more debt to survive the pandemic. And now, with the ATO starting debt collection again, it’s important to be on the front foot.
"As we navigate the changing business environment, we expect our industry will experience an increase in advisory services, so it’s vital that accountants, lawyers and financial advisers understand that our sector is able to offer a lot more than just winding up solutions. There are myriad business rescue, restructuring and solvency solutions available.”
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