Company collapses at record levels

The two-speed economy is rearing its head in Western Australia, with corporate insolvencies hitting a record high in July despite solid economic fundamentals in the resources sector.

Taylor Woodings’ monthly Insolvency Insights report showed 77 companies collapsed in WA over July, up 35 per cent on the previous month.

Nationally, external administrations were also the highest on record for the month of July, up 6 per cent on July last year to 921.

Taylor Woodings Perth managing partner Michael Ryan said the high Australian dollar, uncertainty in global markets and low consumer confidence were impacting businesses across the nation, but in WA, the impact of the two-speed economy was being felt the hardest.

“You’ve got the added pressure of the mining industry creating demand for employees or workers and also pushing up costs,” Mr Ryan told WA Business News.

Mr Ryan went on to say the continued weakness of the residential property market in WA was having a marked effect on business.

“Residential property prices in WA were quite strong leading up to the GFC, and since then they have been relatively flat or even falling in some areas,” he said.

The higher prices and the rapid increase in residential prices provided a bit of a safety net for businesses during the GFC, so WA businesses were better able to withstand its effects.

“But now, two or three years on, they are starting to lose the ability to withstand those pressures and they’re struggling to survive.”

The collapses were not confined to a single sector of the industry, with corporate insolvencies occurring “across the board”, Mr Ryan said, but smaller businesses in were more susceptible to failure.

“The fact of the residential market not being strong and therefore people not having the ability to borrow as much as earlier years is finally having an impact,” he said.

“They are finding the smaller guys which have been hanging on and are suffering from a downturn in demand and are then suffering cash flow problems can’t go and borrow against their house, which they normally would do in those times.”

The outlook for business in the state over the short term is similarly bleak.

Mr Ryan said he could not see any reason for insolvencies to improve before the end of the year.

“The consumer confidence numbers that we’re seeing and the business confidence numbers are going to mean that businesses are going to have to work hard to maintain their business and their profitability in the short term,” he said

“In the medium term, if we do see a rebound in confidence the businesses that have survived will be well placed, there is a lot of deleveraging going on in people’s balance sheets, so they are certainly going to be in a better debt position and be able to capitalise on a rebound in confidence.

“It’s just when that comes, that’s the issue and I think that rebound will depend on general sentiment which is impacted by the international events.”

 See http://www.wabusinessnews.com.au/article/Insolvency-firms-run-hot