Bankruptcy numbers fall as economy recovers

In another sign that the economy is in recovery mode, personal bankruptcy numbers have fallen 8% in the first three months of the year and are now back near levels last seen in 2007 and 2008.

According to statistics from the Insolvency and Trustee Service Australia showed bankruptcies fell to 6,568, down 8.2% in the three months to March 31.

Figures were also down almost 3% on the December quarter, although insolvency expert Jim Downey suggests that this is most likely seasonal, as the month of January is traditionally very quiet for insolvency actions.

The number of Part IX debt agreements – which are used as a low-cost way for individuals battling debt problems to make deals with their creditors without entering formal bankruptcy – increased 0.1% during the quarter to 2,057.

Downey says bankruptcy work has been “erratic” in the first part of the year, although his firm deals more with the high-end bankruptcies, which typically come in the wake of corporate collapses.

“These are former directors of private companies that have gone bust and the directors are left with a whole lot of guarantees to banks and other creditors.”

Smaller scale bankruptcies are handled by ITSA.

While the drop in bankruptcies is a welcome sign in terms of improving economic conditions, Downey still expects an increase in insolvencies in the coming months.

He expects rising rates and a more aggressive approach from the Australian Taxation Office will put the pinch on more companies and directors.
“I think there is good evidence the ATO has become tougher – I think the honeymoon is over there. The sort of deals that you used to be able to get 12 or 18 months ago just aren’t available now.”

While he says the recovering economy will help support some business, Downey believes the ATO will “have a bit of backlog” of debtors to work through.