There have been several quarters of negative economic news and predictions of a coming recession and inflation coupled with increased interest rates caused by lockdowns and the COVID-19 pandemic. To date however, the insolvency statistics do not reflect the much publicised wave of corporate and personal insolvency appointments.
According to the Australian Financial Security Authority (AFSA), statistics released in October 2021 showed that personal insolvencies fell 12.3% in the September 2021 quarter compared to the 2020 September quarter.
According to the Australian Securities and Investments Commission (ASIC), statistics released in October 2021 showed that corporate insolvencies in Australia fell 1.95% in the September 2021 quarter compared to the 2020 September quarter.
The government’s new small business restructuring insolvency solution, has also continued to have an immaterial impact and there have not been many appointments over the last six to nine months.
Why are appointments so low?
It was widely predicted that there would be a significant increase in insolvency when insolvency protection expired on 1 January 2021 and again, when the JobKeeper programme ended last year. In both cases, these events had no significant impact on the number of insolvency appointments.
There are three key drivers for the insolvency market remaining depressed.
First, it has become apparent that the government over-stimulated the economy through the COVID-19 pandemic onset. This “over stimulus” has left many businesses and households in a better position than when they entered the pandemic with healthier savings and balance sheets.
Second, the Australian Taxation Office (ATO) has deferred recovery action. The ATO debt books have grown significantly through the pandemic period as it took a very accommodating approach to recovery. This has allowed many businesses to use the ATO as a source of financing to allow an otherwise unviable business to continue.
Third, during the pandemic, many households and business took the opportunity to save a significant amount of the stimulus they received. This gives business, households and the economy as a whole a buffer that will delay insolvency through the post-pandemic period.
It is expected that the current low levels of insolvency appointments will be the new normal for the first half of 2022. However, as the ATO inevitably ramps up its enforcement and collection activities in 2022 and businesses and households exhaust their savings war chest, we expect to see insolvencies trend back up to historically average levels.
As part of the Federal Government’s response to the pandemic, the threshold for issuing statutory demands and bankruptcy notices to debtors temporarily increased to $20,000. The timeframe for responding to such demands and notices was also temporarily extended from 21 days to 6 months.
Those protections have now expired and creditors can now:
- issue statutory demands to companies for amounts of not less than $4,000.
- issue bankruptcy notices to individuals for amounts of not less than $10,000.
As has been reported widely in the media the temporary measures appear to have resulted in significant unpaid debt in the economy. At some stage however, creditors including the ATO are likely to look to recover their debts.
Whether you are a creditor or debtor we are able to assist you with insolvency matters (both corporate and personal).
You know where we are and you know what we do…………….