Collapses soar 18% to near GFC levels as ATO pushes hard on debt

The number of companies entering insolvency or external administration has continued to rise, in one of the worst years for corporate collapses in decades as the ATO continues to crack down on its debtors.

The data comes just days after the ATO itself released its annual report in which it revealed the number of ATO-initiated wind-up notices has also continued to rise.

The data shows for the three months to September 30, there were 2,961 externally appointed administrations, up by 11.5% from the previous quarter, and up by a massive 18.3% from the same point in 2010.

There has now been two consecutive quarters where appointments have been over 2,600. The only other time this has happened was in the quarter ending December 2008, and for the calendar year, the number of companies entering external administration was up 9.6% from last year.

Creditor-initiated court liquidations were up 33.7%, with receivership appoints up 12.7% – ASIC says this gels with evidence from practitioners that the ATO is continuing to strike down on its debt recovery plans.

Cliff Sanderson of Dissolve says this is the case, but is struck by the sheer breadth of the numbers.

“The numbers are a little down on last month, but it’s the highest September ever. And six of the nine months of this year have been at their highest level ever.”

“If you go back to September 2007, there were only 557 collapses. That really puts everything into perspective.”

Sanderson says the figures are clear evidence the GFC hit SMEs hard, “and we’re continuing to witness it”, noting that the ATO is a major catalyst here.

“We know that 59% of corporate insolvencies are director-initiated. And only 11% of court liquidations are initiated by the ATO – so a large chunk of that 59% will be where the ATO has acted as the catalyst.”

“This is really the ATO reaching the end of its tether, and going through the process of recovering its debt.”

ASIC senior executive leader of insolvency practitioners Adrian Brown said in a statement the figures show both Queensland and Western Australia are seeing collapses driven by property-related appointments.

“We understand that certain secured lenders are crystallising long-standing problem loan positions or taking control of an underlying security where other creditors initiated an external administration,” he said.

The figures show appointments of receivers and controllers increased in New South Wales by 21.5%, and remained high in Queensland. Receivership and controller appointments were also up 52.3% in Western Australia for the calendar year to date.

Court liquidations rose the most in New South Wales, up by 42%, and in Victoria, up by 34%.

And while the effects of the financial crisis may be petering out, Sanderson says insolvencies may remain high for awhile.

“If I had to take a guess, I’d say the ATO still has some work to do and needs to get through a backlog. And even then, when that process finishes, we may be facing another financial crisis.”