Spike in SME collapses as ATO chases debts

The long-predicted jump in company collapses in the SME sector appears to have begun, with the number of companies entering external administration climbing 19.4% from April to May.

A total of 914 companies were placed in the hands of administrators during May, up from 737 in April. The May total was 9.3% higher than 2009 and 14.7% than two years ago.

Insolvency expert Jim Downey, principal of JP Downey & Co, says he has seen a noticeable increase in work over the last few months, particularly from the SME end of the market and individual bankruptcies.

“It certainly seems to have moved to the SME market.”

Like most in the sector, he sees the ATO as the key driver of the surge. He says a great rule of thumb for monitoring activity in the sector is to watch the law notices in the newspaper, where winding up orders are published.

Downey says he is seeing eight to 10 winding up notices lodged by the ATO each week in Melbourne alone.

“If they are active on that front they will typically be active in the issuing of director penalty notices and those will scare the living daylights out of a director – as they should.”

While Downey says there are no clear trends as to which sectors are being most affected by the increase in collapses, he has heard anecdotally that the transport and logistics sector has been hard hit.

Other commentators have noticed problems in the commercial property and importing sectors, with the latter hit particularly hard by the recent weakness in the Australian dollar.

Prolonged weakness in retail spending and the economy-wide impact of higher interest rates is also having an effect, as seen in the most recent high profiled collapse, that of electrical goods retailer Clive Peeters.

Looking forward, Downey says he is sorry to say that he expects a busy period ahead.

“I would think we are in for a busy financial year as the clean up continues.”