Collapses tipped to keep rising as banks’ bad debts top $5 billion

The year has started badly for company collapses, with company liquidators reporting January was another record month for insolvencies, while the banks’ bad debt figures stayed stubbornly high at more than $5 billion.

Company liquidator Cliff Sanderson says there were 518 insolvency appointments in the first month of 2012 – the highest for January since records started being kept in the 1990s, and 13% higher than the previous January.

This follows a record year for insolvencies in 2011, at 1386 appointments by secured creditors. There were also six monthly insolvency records reached through the course of last year.

Sanderson, director of Sydney-based firm Dissolve, says Reserve Bank figures on banks’ new asset impairment charges show that the banks’ bad debts for the December quarter totalled $5.4 billion. This is higher than the previous quarter’s total of $4.9 billion – and well above the pre-GFC level of $1.1 billion.

Sanderson says although bad debt levels might not be expected to fall back to pre-GFC numbers, he’s surprised they seem to have stabilised around the $4 billion-per-quarter mark.

 “With the GFC, you’d expect a small number of large companies to go broke.

“And as time goes by, this filters down to the smaller companies so you’d expect the numbers to go up for a number of years,” he says.

“But with smaller companies [now dominating], you’d expect the cost would trend down.”

Sanderson expects 2012 to deliver more record insolvency numbers, driven by small and medium-sized enterprises, particularly in building and construction and retail.

“I’m expecting the numbers to keep ticking up quietly,” he says.