Login
iscover
ASIC says its FY23 statistics show many small businesses, particularly in construction, failed to recover from the pandemic.
Newsletter
Insolvency data reveals ‘COVID lag’ impact on SMEs
21 December 2023
•
10 minute read
SMEs dominate the latest annual insolvency statistics and highlight the lagging impact of COVID-19 on small business, ASIC says.
You’re out of free articles for this month
To continue reading the rest of this article, please log in.
Create free account to get unlimited news articles and more!
Its series 3 data, based on liquidators reports, shows more than eight out of 10 companies entering administration in FY23 had assets of $100,000 or less while just one in 20 had $1 million or more.
However, when it came to liabilities almost one-third owed more than $1 million and almost 500 companies – of the 5,440 reports – collapsed with debts above $5 million.
ASIC said small-to-medium-sized corporate insolvencies continued to dominate external administrators’ reports with an average of three to four causes of failures for each company.
“The most common reported causes were inadequate cash flow or high cash use (52 per cent of reports), followed by ‘other’ (50 per cent) and trading losses (49 per cent),” ASIC said.
“Further analysis of the ‘other’ causes showed 19 per cent of reports identified the COVID-19 pandemic as a contributing cause.”
Other causes cited were poor strategic management of the business (42 per cent of reports) and poor financial control including a lack of records (32 per cent).
The construction industry was the single biggest contributor to the data with 28 per cent of reports, followed by the accommodation and food services industry (15 per cent) and the “other” category of business and professional services (11 per cent).
Most of the companies – 82 per cent – had fewer than 20 employees and 32 per cent had liabilities of less than $250,000.
“In this group of creditors, 96 per cent received between 0–11c in the dollar, reflecting the asset/liability profile of small-to-medium-sized corporate insolvencies,” ASIC said.
Around 15 per cent of companies wound up owing wages or other entitlements to employees, although the bulk owed $50,000 or less.
ASIC said its series 3 statistics were based on information contained in reports lodged by external administrators and receivers as soon as practicable (and, in the case of a liquidator, within six months), where it appeared to the external administrator or receiver:
- That a relevant person might have committed an offence in relation to the company, been negligent, or otherwise engaged in misconduct.
- Or in the case of a liquidation only, the company might be unable to pay its unsecured creditors more than 50c in the dollar.
In terms of possible misconduct by industry, most external administrators cited multiple offences with trading while insolvent the most common, accounting for 35 per cent. Transgressions of directors duties or obligations to keep financial records were the next most common misconducts.
Most reports were received for insolvencies in NSW (41 per cent), followed by Victoria (27 per cent) and Queensland (18 per cent).
ASIC said registered liquidators continued to improve the timeliness in lodging their reports, with 77 per cent now lodged less than six months after appointment, reflecting a longer-term trend.
You need to be a member to post comments. Become a member for free today!
