Insolvency Statistics Stay Low in July

Here we are in the first recession for Australia since 1992, massive problems for the business world, and yet the number of insolvencies is running at 50-60% below the corresponding months from a year ago.  You’d be aware that is a direct result of “temporary“ emergency measures introduced in March and just extended to 31 December 2020 (someone needs to define “temporary” for me!):

• the minimum threshold for creditors issuing a statutory demand on a company under the Corporations Act rose from A$2000 to $20,000;
• the timeframe for a company to respond to a statutory demand was extended from 21 days to six months;
• directors were temporarily relieved of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of a company’s business;
• the threshold for the minimum amount of debt required for a creditor to initiate proceedings against a debtor increased from $5000 to $20,000; and
• the time a debtor has to respond to a bankruptcy notice was increase from 21 days to six months.

And so the pattern of low insolvency appointments continues. The monthly Corporate Insolvency Appointment data has come in at 373 new appointments for the month of July 2020. This is a small increase over the June 2020 number of 364, but is still down 56% when compared to July 2019’s 846.

Court liquidations are down 80% when compared to 2019.  That is as expected due to the increased debt threshold and longer lead times on statutory demand protections. Voluntary Liquidations are down 44% on July 2019 and Voluntary Administrations are down 65%.

Preliminary weekly numbers indicate that August will remain in the mid 300s. Yes, maybe lower again!

The COVID-19 protections and JobKeeper stimulus continue to not only protect companies from the pandemic but stop companies that would normally have failed from entering insolvency. We expect the recent decision to continue these protections for another 3 months will only exacerbate this effect.