Australia is facing a potential tsunami of bankruptcies as a result of business-related insolvencies due to COVID-19. And the greatest danger period is 12-18 months down the track, says a leading national voluntary insolvency firm, Jirsch Sutherland.
According to the Australian Financial Security Authority (AFSA) personal insolvency statistics for the March quarter 2020, there was 5,319 personal insolvencies, a 16.5 per cent fall compared with the corresponding quarter in 2019 – the lowest level since the December quarter 1990. Just under a quarter (24 per cent) of people who entered a personal insolvency were in business.
“While bankruptcies have fallen over the quarter, we’re likely to see a significant increase in business-related personal insolvencies as a result of the economic impact of COVID-19,” says Malcolm Howell, a bankruptcy trustee and Jirsch Sutherland Partner.
“Once the government relief measures expire, many SMEs that have deferred their liabilities are likely to receive a severe capital hit six or more months down the track and might not be able to meet their obligations. And given a lot of small-business owners often use personal finances for business borrowings – including using their homes as a guarantee – they are more vulnerable.
“Any business that has used personal finances for business borrowings is at risk. As property prices fall, there is reduced levels of equity with which to finance or prop up a business.”
Howell believes there will be a personal insolvency spike in 2021. “Personal insolvencies are a longer process, particularly if they are as a result of a failed business,” he explains.
“Business owners and individuals will have more breathing space thanks to the Federal Government’s changes to Australia’s insolvency laws. However, it doesn’t mean they should put off seeking advice if they find themselves experiencing financial stress. Our message is clear: seek advice early; talk to your accountant or an insolvency specialist. The relaxed insolvency laws mean you have six months to decide what the best solution is.
“Temporary changes to the insolvency rules will buy people time to seek advice and work on the best solutions available, but we are bracing for a wave of personal insolvencies next year.”
Howell adds bankruptcy isn’t something to be ashamed or scared of: “It’s a result of circumstances and sometimes it’s the only way to recover and to maintain your mental health and wellbeing and that of
your family,” he says. “Financial pressures affect everybody in the family, not just the individual concerned.”
About Jirsch Sutherland – www.jirschsutherland.com.au
Established in 1984, Jirsch Sutherland is one of Australia’s leading national independent insolvency specialists. The Jirsch Sutherland team works closely with small and mid-size accounting, finance and legal firms – and their clients – to provide a wide range of expert corporate and personal insolvency services including liquidations, voluntary administrations, receiverships and bankruptcy.
With head offices in Sydney, Melbourne, Brisbane, Newcastle and Perth, supported by a network of regional offices, Jirsch Sutherland’s national reach combined with a local presence underpins the company’s ongoing success. For over three decades, Jirsch Sutherland has earned a well-deserved reputation for protecting and guiding clients through the insolvency process in a fair and ethical way.
In Western Australia, Jirsch Sutherland trades as WA Insolvency Solutions.
For further information:
0419 401 362