Predictions for Insolvency Appointments through the End of 2023 – Insolvency/Bankruptcy

To print this article, all you need to do is be registered or log in to Mondaq.com.

Currently holding steady as economic headwinds increase, but for how long?

It’s been a wild quarter for the Australian economy, with growing headwinds from a range of international and domestic factors. While these factors have put increasing pressure on businesses, they have yet to result in the significant increase in the number of insolvency appointments that we are seeing.

Business insolvency

Corporate insolvency appointments in fiscal year 2022 followed essentially the same pace as fiscal year 2021. In fiscal year 2021, we had a total number of insolvency appointments of company of 6,049, and while the full numbers are not yet known for FY 2022, I expect the final number to be around 6,500 appointments for the year. Although this is an increase of approximately 7% over the previous fiscal year, it is still well below the long-term average of 10,744 appointments per fiscal year.I

1210468a.jpg

Personal insolvency

Personal insolvency appointments for fiscal year 2022 remained historically low. Operating at around 40% of historical norms and continuing to decline in fiscal year 2022. For fiscal year 2021, there were 10,628 personal insolvency appointments, when we will likely see around 9,500 in fiscal year 2022 by the time all the numbers come in. This is quite a surprising result. Despite the lifting of restrictions on debt enforcement and filing for bankruptcy, we still saw the number of personal insolvencies drop in fiscal year 2022. ii

1210468b.jpg

economy

Despite the low number of insolvency nominations in fiscal year 2022, the business and financial environment continues to deteriorate, with a number of factors likely to create significant headwinds for the economy over the course of the year. financial year 2023.

These include:

  • Inflation, which was at 5.1% last quarter and is expected to top 7% by the end of 2022. The RBA forecasts that it will take several years before inflation returns to its target range of 2-3%. Continued high inflation will put constant pressure on corporate and household bottom lines.

  • Interest rate are expected to increase significantly as the RBA is committed to fighting inflation. We had already seen two increases in the past few months and markets expect the spot rate to reach 3% by the end of 2022 and peak at 3.8% in mid-2023. For every 1% increase in the cash rate, Australian households see a decrease of around 5% in their disposable income, which means less money in the economy to spend on local businesses.

  • Supply Chain challenges will continue for the next 18 to 24 months. The cost of shipping goods from our key import markets to Australia remains nearly 400% higher than historical averages and shortages in transportation capacity will keep prices high through fiscal 2023. China, Australia’s largest trading partner, has given strong indications that lockdowns to support COVID-Zero will remain core policy for at least the rest of 2022. As a result, we will continue to see the hard-to-get trading experience necessary supplies abroad.

  • Staff shortages and wage increases are already having a significant impact on many industries and this trend will continue through fiscal 2023. Unemployment remains at a near-record low of 3.9%, while labor force participation is already at record highs. One of the main factors for staff shortages is the immigration freeze that took place during the period of the pandemic. Although this freeze has been lifted, migrant workers have been slow to return to Australia and forecasts indicate that it will be some time before immigrations begin to have an impact on staff shortages.

  • Energy prices remain very high, especially oil prices due to both the war in Ukraine and a global shortage of refining capacity. With global demand expected to remain high and the process of creating additional capacity taking a long time, petrol prices will remain high in Australia for the foreseeable future. Australia also has an impending increase in fuel excise duties in September this year, which will put further upward pressure on petrol prices.

Tsunami of insolvency?

With all these challenges facing the Australian economy, it is only a matter of time before we start to see the impact on businesses and individuals morphing into an increasing number of insolvency dates. However, I don’t think we will see a tsunami. The most likely outcome is a slow increase in the number of appointments through FY2023, with the number of appointments peaking at around 120% of historical averages by the end of 2023.

Footnotes

I Source: ASIC – Series 1B Notification of companies entering external director and controller appointments – weekly.

ii Source: AFSA Monthly Personal Insolvency Statistics 2020; 2021; 2022.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

POPULAR ARTICLES ON: Insolvency/Bankruptcy/Restructuring from Australia

Comments are closed.