Are you protected from insolvency?

Are you protected from insolvency?

In past week, both the Australian Financial Security Authority (AFSA) and Australian Securities and Investment Commission (ASIC) released their quarterly insolvency statistics.

AFSA reported that personal insolvency activity fell 8.7 per cent and that all states and territories (except for Western Australia) recorded decreases in total personal insolvency activity in the September quarter 2013 compared to the September quarter 2012.

The most frequent causes of insolvent debtors entering a personal insolvency administration in the June quarter 2013 were:

  • economic conditions when the personal insolvency was business related.
  • unemployment where the personal insolvency was non-business related or it was not stated whether the insolvency was business  related.

The proportion of debtors with business related bankruptcies or debt agreements reached record proportions in 2012–13, reaching 25 per cent and 8.7 per cent of total bankruptcy respectively.

ASIC reported that corporate insolvency appointments Australia wide for the June 2013 quarter increased 10.3 per cent in comparison to June 2012 Quarter.

But what does all this data mean? 

As insolvency practitioners specialising in SME market we have been seeing that in relation to unemployment related bankruptcy, a common case is an individual who in the past had been employed in high paying job and now as a result of unemployment being unable to fund the commitments entered into whilst earning significant wages such as hire purchase payments for cars, boats, and motor bikes.

In addition it is common for an individual to use credit cards to continue to fund the lifestyle that they were accustomed prior to unemployment. This leads to credit card debt that is unserviceable.

In relation to business related bankruptcy and corporate insolvency, the data suggests that overall business conditions in remain challenging.  We are seeing one of the major issues that SME is facing are:

  • Difficulty collecting accounts receivable, which in turn places pressure on cash flow.
  • Increase collection pressures from the Australian Taxation Office, Company’s with .historical tax debt that is now being pursued aggressively.
  • Difficulty obtaining finance to fund short term working capital shortages.
  • Low consumer confidence.

The moral to this story is that factors outside your control ‚Äì illness, economic conditions etc ‚Äì can affect your financial position in ways you could never dream of, so it’s vital to ensure you are as protected as possible.

Seeking appropriate specialist advice when you find yourself in difficulty can help you avoid financial failure.

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