Insolvency experts are urging retailers, manufacturers and tourism operators to downgrade growth targets in light of new insolvency figures revealing that those sectors are the hardest hit. According to figures released by the Australian Securities and Investments Commission 8802 companies entered into external administration during the 11 months to May this year – a 4.4% increase on the previous year.
Boom state WA experienced an unexpected surge, with corporate insolvencies increasing by more than 20% during the financial year to May.During the 11 months to May 624 WA companies entered into external administration, up from 517 in the previous corresponding period.
Adrian Brown, ASIC senior executive leader of the insolvency practitioners team, said WA is seeing its fair share of corporate insolvencies despite its position in the fast lane of a two-speed economy. “Statistics collated by ASIC up to and including May 2011 show court liquidations in Australia rose 8.6% and director-initiated creditors voluntary liquidations rose 7.6%,” Brown said.
The rest of the country didn’t fare much better. In the Northern Territory insolvencies figures increased by a whopping 55% while South Australia saw an increase of 13.2%. In Victoria, where manufacturing is a major industry, the number of companies being placed in administration increased by almost 10%.
Corporate collapses were relatively stable in Queensland and NSW, both of which recorded declines of less than 1%. Tasmania saw a decline of 6.6% and the ACT recorded a decline of 12.4%. Ferrier Hodgson partner George Georges, who specialises in administrations, says retail, manufacturing and transport are the hardest hit. “There has been a consistent stream of appointments, particularly at the smaller end where the Australian Tax Office has been driving recovery processes,” Georges says.
Georges says while rising interest rates are causing strain for some businesses many have also been hurt by consumer caution, with Australians ramping up their savings efforts. ANZ chief Mike Smith has cautioned that a structural change is taking place across the economy, which means manufacturers, tourism operators and retailers must adapt to a lower margin, lower growth environment.
Andrew Schwarz, a partner at chartered accounting firm Taylor Woodings, says businesses in those industries must ensure they’re operating “as best they can be”. “It’s about being efficient, meeting industry benchmarks, sorting out funding structures, having good equity and not too much debt,” Schwarz says. “Cash is king but you need to discount your prices to get some turnover.”
The latest retail trade figures released by the Australian Bureau of Statistics show a 0.6% decline for May, confirming that consumers are unwilling to spend. Russell Zimmerman, executive director of the Australian Retailers Association, says consumers are uncertain about the impending carbon tax price, with household budgets already stretched due to the increasing cost of utilities. “Consumers are taking a ‘wait and see’ approach to how much discretionary income they will have after paying for the necessities and coping with the new flood tax and the consumer impacts of carbon pricing,” Zimmerman says.
The Australian Industry Group in conjunction with PricewaterhouseCoopers recently released the Performance of Manufacturing Index for June. The manufacturing sector picked up in June and AIG chief executive Heather Ridout says the sector continues to confront “formidable headwinds” in the form of the high Australian dollar, rising energy costs and constraining interest rates.
“These circumstances point to the severe risks for the sector,” Ridout says. With regard to tourism, new ABS data shows a substantial rise in the number of visitors from overseas, mainly from Asia. But domestic tourism is still in decline as consumers look to take advantage of the strong Australian dollar.