Each of our insolvency regulators, ASIC for corporate, AFSA for personal, has issued its statistics for 2022-2023 right on the eve of Christmas,[1] each presenting its [2] separate perspectives, with few connections offered, for example in relation to small business insolvencies. [originally issued 24.12.23; updated 30.12.23].
Personal insolvency
Some brief* points are:
There were just under 10,000 new personal insolvencies in 2022-23. Of those, 91% were by debtors’ petition, the same % as in 2021–22. The remaining 9% were based upon a court sequestration order.
Of those made bankrupt by a sequestration order over time, 4,887 had not submitted a statement of affairs. Of these, 86% became bankrupt at least 5 years ago.
The Official Trustee (OT) administers most new bankruptcies, 76% in 2022–23, the same as in 2021–22.
The OT and Registered Trustees (RTs) declared and paid dividends in 1,320 bankruptcies in 2022–23, totalling over $64 million – the OT paying $7.6m, and RTs $56.8m.
The Official Trustee administered nearly $32 million in payments in 2022–23. Dividends and secured creditor payments accounted for 40% of these payments; and remuneration around 10%.
Registered trustees administered more than $287 million in payments in 2022–23. Remuneration accounted for 28% of these payments, and secured creditor payments accounted for another 24%.
Rates of return – bankruptcies, debt agreements, personal insolvency agreements
There were 8,019 bankrupt estates finalised in 2022–23. Unsecured creditors received an average dividend of 2.19 cents – 1.27c from the OT and 2.68c from RTs.
Creditors accepted 4,117 debt agreement proposals in 2022–23 that reached the voting deadline. This compares with 11,497 in 2028-19. Creditors received an average of 51.74 cents per dollar owed in debt agreements completed in 2022–23.
There were 238 personal insolvency agreements finalised in 2022–23 by registered trustees. Unsecured creditors received an average of 10.36c in dividends. Of the $20 million in payments, dividends accounted for 42% and trustee remuneration for another 19%.
Annulments
In 2022–23, there were 73 section 74 annulments, which occur when creditors accept a composition or arrangement to settle the bankrupt’s debts.
There were 257 section 153A annulments, which occur when a bankrupt pays all her or his debts in full.
There were only 2 section 153B annulments, which occur when a bankrupt successfully applies to the court for an order annulling his or her bankruptcy.
Objections to discharge
Consistent with previous years, most objections to discharge – 323 – extended the bankruptcy to eight years. There were 18 objections to discharge extending bankruptcy by five years. There was a large drop in the number of objections to discharge.
2023-2024
AFSA says it expects annual personal insolvencies to rise by 23% in 2023-24 to around 12,250. While this is a substantial increase, it is still well below the long-term average of 23,100.
Corporate insolvency
In corporate insolvency, there were 3,929 external administrations as at 19 November 2023, up 35% from the same period of the previous financial year (2,911). Court liquidations have remained 15% below pre-COVID-19 levels during the current financial year.
This increase follows the 61.7% increase in the 2022–23 financial year (7,942) from the 2021–22 financial year (4,912). Pre-COVID-19 levels are calculated at 7,937.
According to ASIC, these statistics highlight the lag of the impact of the COVID-19 pandemic on small business with small to medium size corporate insolvencies (SMEs) continuing “to dominate external administrators’ reports”.
Putting that in context, SMEs constitute over 95% of all businesses, so that dominance is not unexpected. In further context, companies make up about 42% of Australian businesses, with the majority 58% of all businesses being sole traders, partnerships and trusts. [3] There are over 2 million MSMEs in Australia.
Of these 7,000 or so SME insolvencies, ASIC reports that 83% had assets of $100,000 or less, 82% had fewer than 20 employees, 32% had liabilities of less than $250,000 and 68% had liabilities of less than $1 million. Of the creditors in this group, 96% received between 0–11 cents in the dollar.
The low asset/liability profile of SME corporate insolvencies is nothing new since Jason Harris and I started to look deeper into what figures are available.[4] In further detail, these show for example that 92% of external administrations pay no dividend returns to creditors at all, and a high proportion pay no remuneration to the liquidator. Around 58% of companies that enter liquidation have less than $10,000 in assets, and 37% of companies have no assets.
Significantly, five or more times as many companies are deregistered by default, through s 601AB of the Corporations Act, as are deregistered following an external administration, putting ASIC’s figures and comments on corporate failure in some further context.
Hence our view that in corporate insolvency,
“what statistics are available reveal that there is not enough money remaining in insolvent estates to properly fund the costs of administrations, let alone pay dividends to creditors”.
Even in bankruptcy where there is a government Official Trustee, dividend returns average just over 2c, and over 30% of bankrupt estates handled by private trustees are estimated to pay no remuneration.
In the MSME context, nearly a quarter of active personal insolvencies are business-related, and they represent over two-thirds of the total system debt at $9.6 billion. How many arise from liquidated companies, or restructured companies, for example under Part 5.3B, would be a useful statistic to have.
The 2023 PJC Report on Corporate Insolvency has recommended a comprehensive review of insolvency law and to enhance the effectiveness of, and interaction between, the personal and corporate insolvency systems, including in relation to small business.
Good quality and co-ordinated data as to small business insolvency is needed from the regulators for that review.
* Given the timing ….
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[1] As to AFSA, see my comments at Australian bankruptcy statistics 2019-2021 – Murrays Legal. See Annual administration statistics | Australian Financial Security Authority (afsa.gov.au)
[2] ASIC Corporate Insolvency Update – Issue 30 | ASIC
[3] ABS, 8165.0 Counts of Australian Businesses, including Entries and Exits, June 2019 to June 2023, Table 10, 22 August 2023.
[4] Michael Murray and Jason Harris, Rebuilding the structure of the Australian insolvency system (2022) 22(1 & 2) Insolvency Law Bulletin 14.
