Common Themes To Company Failures
Sydney Morning Herald
Friday June 27, 2008
POOR strategic management, insufficient cash flow and trading losses are among the most common reasons why companies fail, new statistics from the corporate regulator indicate. And in most cases, unsecured creditors recoup less than 10 cents in the dollar.
The figures suggest the vast majority of failed companies have fewer than 200 employees, almost 65 per cent of them have fewer than five staff members, and that more failures occur in the construction, business services and retail sectors. The Australian Securities and Investments Commission has released statistics tracking company insolvencies over the three financial years to 2006-07, compiled from reports lodged by company administrators, liquidators and receivers. It is understood the figures account for most of the insolvencies in Australia each year.The Insolvency Practitioners Association welcomed the release of the statistics, saying they would make it easier to point to trends in insolvencies which often reflected wider economic factors. Its president, Paul Cook, said the industry had, in the past, relied on anecdotal evidence when looking for wider trends. "Now we will have a baseline," he said. The figures show that the number of companies reported as insolvent in 2006-07 soared to 7562, up 12.11 per cent on the 6745 recorded the year before and 6316 in 2004-05. The most common recorded reasons for failure were poor strategic management (43 per cent of cases) and inadequate cash flow (40 per cent). In 96 per cent of cases, unsecured creditors were expected to get 10 cents in the dollar or less. Almost half of the insolvencies were recorded in NSW and about a quarter in Victoria. Australia has experienced a more recent rise in the number of companies entering administration - a trend insolvency specialists attribute to higher interest rates and scarce credit. ASIC figures show 2426 companies entered administration in four months to the end of April, up from 2225 for the same period last year. April was a particularly busy month, with 680 companies entering administration, compared to 498 in April last year.
© 2008 Sydney Morning Herald
