ASIC released its annual report into insolvency in October 2013. The report summarises the information reported to ASIC by insolvency practitioners. The report provides an insight into the insolvency landscape of Australia.
In light of the information provided, we have extracted and summarised some of the key points we believe are most relevant. These are:
- 81% of businesses that became insolvent were small businesses with less than 20 employees.
- 85% of failed businesses had assets of less than $100,000.
- 43% of failed businesses had liabilities of less than $250,000.
- Poor management was a factor in 42% of failed businesses.
- Cash flow was a factor in 41% of businesses which became insolvent.
- Trading losses was a factor in 32% of insolvent businesses.
- Insolvent trading was reported in 53% of insolvent companies.
- 35% of failed companies failed to keep proper books and records.
- A lack of care and diligence was reported in 25% of failed companies.
- In 97% of insolvencies, a dividend less than 11 cents in the dollar was paid.
In light of the information in the ASIC report, it is our view that the SME market is most affected by insolvencies.
Often this can be a result of poor management and failure to keep proper records. These would allow a proper analysis of a business to be completed that could inform small to medium enterprise owners of potential issues.
If you are concerned about your clients’ financial position you may wish to consider advising that your client seek professional advice. As you will know, early intervention provides the best opportunity for your client to trade through their difficulties and come through the other side.
If you would like to speak to us regarding the early warning signs of insolvency or your concerns regarding a client, please do not hesitate to contact us.