By Mark Hoppe*

From January to May this year there were 3,634 Australian insolvencies, according to ASIC insolvency data (1).

The Australian economy is generally stable compared to many other countries in the region and around the world. However, the local market is facing a deteriorating insolvency landscape, according to Atradius (2).

The highest insolvency industry in Australia so far this year is construction.

625 insolvencies have been within the construction sector, much higher than all of the other industries.

Mark Hoppe, managing director, Atradius said, “The Australian construction industry has been experiencing high insolvency rates for some time now. Compared to other industries, it has the highest number of insolvencies by far.

“While construction has the highest insolvency rate, there are other sectors that are also greatly affected. I feel the benefits of credit insurance is still fairly unknown across many industries in Australia and I would encourage businesses to do some homework on the product to better understand how being credit-insured safeguards a company against risks that could otherwise cripple a business.”

The accommodation and food sector experienced the second highest level of insolvencies at 316.

Mark Hoppe said, “For some time now we have seen the food and accommodation sector’s insolvency rate increasing. This may in part be due to increased competition and changing consumer spending habits.”

The metals, mining and steel industries has also been experiencing a high rate of insolvencies at 167 insolvencies so far this year.

Mark Hoppe said, “There has been a continued drop in demand for the steel and metal sectors, resulting in over-capacity and falling prices as producers seek to unburden themselves of their unused stockpiles.

“The mining sector is also still experiencing difficulty. The slowdown in China is putting some pressure on the insolvency landscape, as is the continuing slump in the commodities market, which makes up a large portion of Australia’s export volume. These forces are leading to an increased risk of insolvency rates in the Australian market, with some industry sectors facing more exposure than others.

“Despite the hard times we’re experiencing now, the mining sector is likely to start to pick up as continuing urbanisation, growth in manufacturing, and increasing investment in key infrastructure in Asian nations means that demand for Australia’s minerals will continue to grow.”

Other key insolvency rates included:
- Construction – 625
- Agriculture – 62
- Accommodation and food – 316
- Education and training – 79
- Electricity, gas, water and waste services – 63
- Manufacturing – 172
- Mining – 167
- Retail – 273
- Transport – 165

This year’s high rate of insolvencies highlights the need for businesses to be aware of any vulnerable areas to their business that could put them at risk of bankruptcy.

In such an environment, it’s important that Australian businesses do what they can to minimise risk their exposure by implementing strategic risk minimisation practices. Credit insurance helps businesses to continue to trade confidently, despite the broader insolvency risk environment.

Mark Hoppe said, “It’s important businesses strive not to be just another insolvency statistic. Take Dick Smith for example, a company which no one was expecting would become insolvent.

“Dick Smith fell into receivership on 5 January with reported debts of $390 million. The firm’s management said sales and cash generation were below expectations in the key December trading period, continuing a poor run in the later part of 2015. Businesses must prepare for slow trading periods to avoid being overcome by debt.”

*Mark Hoppe is Managing Director, ANZ Atradius

REFERENCES

1)ASICinsolvencydata,2016 http://asic.gov.au/regulatory-resources/find-a-document/statistics/insolvency-statistics/insolvency-statistics-series-1a-companies-entering-external-administration-by-industry/

2)Insolvency Forecasts; Atradius Economic Research; February2016.

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