Insolvency the busiest it’s been in 50 years, says industry veteran
Insolvency practitioner John Vouris reflects on his 50 years in the industry and the recent boom in insolvency driven by the economy.
Following events such as COVID-19, the Australian economy and small business industry are still trying to regain normal operations, with some SMEs still struggling to reverse the negative impacts.
Hall Chadwick Partner and insolvency practitioner John Vouris said the insolvency continues to see increasing demand for insolvency services as the ATO chases down debts post the global pandemic, which businesses are struggling to pay back.
“In the aftermath of COVID, the tax office wasn’t chasing their debts, and now not only are they chasing debts, they’re making directors personally liable,” he said.
Increased cost of living and inflation and a more intense focus on debt collection by the ATO and creditors are driving an influx in business for insolvency practitioners at the moment.
Insolvency data released by ASIC in April this year showed an increased number of Australian companies failing from 1 July 2023 to 31 March 2024.
In its statement, ASIC highlighted there was a 36.2 per cent increase in Australian companies requiring external administration compared to the previous period, with construction, administration and food service industries making up the majority of this figure.
Over his 50 years as an insolvency practitioner, Vouris said the insolvency process has drastically changed in terms of how simple and attainable it is for struggling companies to seek external advice.
Vouris said since beginning in the insolvency industry in 1974, he has never been this busy.
He also outlined how the insolvency processes have changed and how these systems have been incorporated into the industry over the years.
Before 1993 the only process involved with insolvency was liquidation of a company. However, since then administration processes, safe harbouring and small business restructuring regimes have been introduced.
From 1993, if a company was facing becoming insolvent, an administrator would be assigned to the company to aid the liquidation process.
In September 2017, the safe harbour regime was introduced which provides company directors the opportunity to initiate a restructure of their company to avoid the potential risk of personal liability for debts.
This was further followed by the small business restructuring regime in 2021, which provides companies facing insolvency multiple pathways to restructure.
Vouris stated the introduction of these systems, particularly the small business restructuring regime, has made the insolvency route a much cheaper and more accessible option for small businesses.
This accessibility and feasibility for small businesses facing insolvency lends to the increased amount of business practitioners are currently seeing.
“The streamline of a small business restructuring. It’s cheaper. The costs for an insolvency practitioner to do that is around about half of what you would pay in an administration process and its quicker. A deal is done,” he said.
In June 2024, ASIC data indicated that a total of 10,769 companies had entered external administration or had a controller appointed.
Though more and more business closures have been occurring recently, Vouris believes it’s not all “doom and gloom” and the increased insolvency rates will not last indefinitely.
