2021 Insolvency Statistics - low and staying low!

ASIC has just published the December 2021 Corporate Insolvency Statistics allowing us to run the totals for the 2021 calendar year.

In 2021 4,511 companies entered some form of external administration (which includes liquidation, voluntary administration, and receivership among others).

This total is down 47% from the average of the 5 years prior to the beginning of the pandemic (2015 – 2019) which was 8,570. 2021 was also a 9% decrease from the 2021 total of 4,943 (keep in mind 2020 enjoyed 3 months unaffected by the pandemic).

2021’s total of 4,511 is the second lowest yearly total since record keeping started in 1999. Only calendar year 1999 was lower with 4,314.

Court Initiated liquidations have seen the largest decrease. In pre pandemic 2019 there were 2,287 court liquidations, 2021 saw only 706, a drop of 69%. This is because regular court petitioners, like the ATO, are offering generous payment plans and not pursuing debtors affected by COVID.

When considering totals state by state, it rings true that the state with the highest level of COVID protections, Western Australia, has seen the largest decrease in insolvencies. WA’s total of 377 insolvencies in 2021 is down 51% from 2019 which was 762. In comparison NSW and Victoria were both down 44% when compared to 2019.

2021 saw the introduction of two new insolvency types, Simplified Liquidation and Small Business Restructuring (SBR). They were introduced to help small business deal with the fallout of the pandemic. The statistics show uptake of both new regimes has been very slow. Of the 2,656 Voluntary Liquidations commenced in 2021 across Australia only 40 adopted the Simplified Liquidation process (1.5%). Similarly, there were 700 Voluntary Administrations in 2021, but just 33 opted for the Small Business Restructuring process (4.7%). We think this is due to a lack of awareness of the new processes, a lack of demand for formal insolvency across the board and the high barriers to entry imposed on these new processes (tax returns must be up to date in both, and employee entitlements must be paid to complete an SBR).

The bottom line here is goodwill from the major creditor groups, ATO, Banks and Landlords has lead to a significant ongoing decrease in corporate insolvencies. Whilst we are hearing of increased debt pursuit from the ATO in the form of increased phone calls and letters, they are not yet following through with their threats.