13/11/2015 - 15:22

Corporate failures, personal bankruptcies, jump

13/11/2015 - 15:22


Upgrade your subscription to use this feature.

Personal bankruptcies in Western Australia were almost 23 per cent higher in the September quarter than in the same period last year, while business related personal bankruptcies were up 54.3 per cent.

The economic environment is having an impact on WA businesses.

Personal bankruptcies in Western Australia were almost 23 per cent higher in the September quarter than in the same period last year, while business-related personal bankruptcies were up 54.3 per cent.

Both numbers are a sign of the impact of the state’s economic slowdown on small business owners and the wider populace.

Corporate insolvencies were up, too, with court liquidation appointments increasing 72 per cent on the June quarter and receivership appointments up 50 per cent.

That supported a dramatic national increase in court appointed wind-ups, which is now the single largest method of companies entering administration, ahead of creditor wind-ups.

WA fared the worst of any state in those categories, while voluntary administrations increased 23.8 per cent on the June quarter, the second most of any state.

Overall, court liquidation appointments in WA increased 35.7 per cent, at a time when unemployment gradually rose and state final demand was expected to contract.

From June to September, it was the mining industry that fared the worst nationally, with liquidation appointments up 15.5 per cent.

It follows a warning in the Reserve Bank of Australia’s October financial stability review that resources-related companies might face pressure on their ability to roll over debt.

“Bank lending to the resource sector has increased rapidly in recent years, and large resource producers have increased their issuance of debt into financial markets, especially
offshore, even as they cut investment spending,” the RBA said.

“Higher debt and the steep fall in profits have resulted in a significant rise in the debt-servicing ratios of smaller resource producers.”

For mining services companies and resource producers other than BHP Billiton and Rio Tinto, debt-to-equity ratios and net interest expense to earnings ratios were at their worst since the GFC.

“Despite the low business failure rate, banks indicated in liaison that the performance of their resource-related loans had deteriorated somewhat,” the RBA said.

“They also noted that the low level of interest rates could be masking underlying stress in this sector.”

Similarly, the ‘distance to default’ measure for small listed resources corporations was at its lowest since the GFC.

Larger companies were less affected, indicating an increase in the spread of risk across industry.

Surprisingly, however, mining was not the worst performer for the 12 months to the end of the quarter, for which it was unchanged.

Instead, accommodation and food services was 37.6 per cent higher.

There was good news, however, with the ratio of administrations to new business registrations well below the average for the past 10 years.

Looking ahead

According to a report released by global credit insurance company Euler Hermes earlier this year, Australia is one of a series of countries with a substantially higher number of
insolvencies compared with the average before the GFC.

At about 74 per cent higher, Australian insolvencies increased about the same amount as Denmark (77 per cent), while New Zealand was 32 per cent higher.

That reflects an international trend, Euler Holmes said, where developed countries are diverging from developing countries, many of which had fallen.

In the year ahead, the company forecasts Australian insolvencies will rise a further 5 per cent.


Subscription Options