South Australia and Victoria worst hit as company collapses rise

Company collapses increased by 1.7% in May, with businesses in South Australia, Victoria and the ACT hardest hit by Australia’s uneven economy.

The insolvency figures, collated by ASIC, recorded the second-highest number of insolvencies on record for May.

Victorian collapses were up 27.2% on last month, with figures more than doubling in South Australia and the ACT, up 122.2% and 160% respectively.

In a recent report, accountancy firm Taylor Woodings noted the trend was due to “pressure as a result of a multispeed economy and low consumer confidence”.

For the financial year to May, total corporate collapses were up 13.1% on the previous financial year, 8.3% higher than the financial year at the height of the Global Financial Crisis.

Taylor Woodings Melbourne partner Andrew Schwarz says this isn’t necessarily a reason to panic, but that we should remember Australia was protected during the GFC.

“There is the suggestion that the after-effects of the financial crisis could be coming home now and that there might have been a bit of a lag effect,” Schwarz tells StartUpSmart.

“The lack of confidence, housing market contraction and media negativity surrounding the economy are all feeding into one another.”

Schwarz’s analysis suggests that if strengths outside mining emerge, consumer confidence will increase.

“Recent statistics regarding this have been positive,” he says.

“But there’s been no flow-on into the mood of the economy.”

Small businesses in particular appear to be suffering from a lack of confidence, with creditor wind-ups up 7.8%, and voluntary administrations up 59% on the previous month’s figures.

Schwarz says circumstances for start-ups are also very difficult.

“The lack of confidence needed to increase market investment is really making it hard for them,” he says.

The increase in collapses in South Australia, Victoria and the ACT is because these states rely on manufacturing and retail industries, according to Schwarz.

“These are all states where we’ve got stagnant housing and share markets.”

“There’s lowered job security and people are focused on repaying debt rather than investing,” he says.

Taylor Woodings predicts a continued modest increase in insolvencies as the Australian economy continues to struggle “due to weak business conditions, with challenges in the mining, property and finance industries emerging”.

It also expects unemployment to continue to increase in coming months.

“There’s a strong correlation between insolvencies and unemployment, and while that instability and lack of confidence remains, we may well see insolvencies continuing to increase,” Schwarz says.

“While unemployment is low compared with other countries, and certainly isn’t at recession levels, there is certainly the potential for it to continue to climb while there’s such a lack of confidence.”

Meanwhile, Australian Bureau of Statistics figures show unemployment rose 0.2% to 5.1% in May.

Roy Morgan, which disputes the veracity of the ABS figures, quotes a 1.5% jump to 9.7% unemployment in June—4.6% above the May ABS figure.

This article first appeared on StartupSmart.