The Australian Securities and Investments Commission and the Australian Financial Security Authority recently released the statistics for insolvency appointments across Australia. These statistics show that there has been a significant drop in the number of liquidations and bankruptcies, despite the significant impact of COVID-19 on the economy.
Corporate insolvencies for the 2020 financial year dropped by 9.17% compared to the 2019 financial year. They have been on a downward trend since FYE 2012, apart from a slight increase in 2016.
The decline in appointments for 2020 is largely attributed to a significant decrease in appointments for the June quarter 2020. Appointments in the June quarter 2020 fell by 42.58% compared to the same quarter last year.
In total, there were 1,203 new appointments for the June quarter 2020, down from 1,747 for the March quarter 2020, the lowest since the December quarter 2000.
Similarly, personal insolvency appointments for the June quarter 2020 fell drastically by 35.1% (compared to June quarter of last year), the lowest since the March quarter 1996. There were 4,239 new personal insolvencies for the June quarter 2020, a fall from 5,319 for March quarter 2020. In total, there was a decline of 23.3% in personal insolvencies for 2020 compared to 2019.
Trend to Continue in the Near Term
The main reasons for the decline in insolvency appointments include:
- The Federal Government’s JobKeeper scheme which has been contributing $750 per week per employee for businesses with a 30% reduction in revenue for any month from March 2020;
- The Federal Government’s cashflow boost scheme;
- Provisions and agreements waiving and/or deferring certain lease, loan and finance payments;
- Changes to insolvent trading provisions;
- Changes to provisions relating to the issuing of statutory demands; and
- The ATO taking a hands-off approach to debt recovery.
The Federal Government has recently announced an extension to the JobKeeper scheme, which initially was to end in September 2020. JobKeeper has now been extended to March 2021 although at reduced rates. There has also been a relaxation of proposed eligibility criteria, with businesses now only required to prove a reduction in revenue for a single quarter instead of several consecutive quarters. The extension of JobKeeper will go some way to reducing the number of insolvencies in the short term. However, when the JobKeeper provisions end (as well as the other provisions referred to above) there will be numerous companies and individuals left with unmanageable debts.
As a result, we expect the downward trend in insolvency appointments to continue in the short term, before an increase in insolvencies possibly early to mid-next year.
Contact Us For Assistance
If you think you or your business are going to have financial problems when the above COVID-19 measures end, the best time to take action is now. So, please get in touch with us on 1300 906 966 or send us an email at email@example.com to arrange a free confidential initial discussion.