Numbers of insolvencies of individuals and companies have fallen dramatically over the years, which we may find represents a fundamental shift away from the formal legal processes involved.
That is, of the 3.4 million companies in Australia in 2023-2024, only around 11,000 went into some sort of insolvency administration (0.33%). While this exceeded the peaks seen in 2011–13, Australia had only 2 million companies at that time (0.53%). That percentage today would have seen over 18,000 companies enter insolvency, far in excess of the actual 11,000.
By far the majority of the 11,000 were small to medium enterprises (SMEs). Of those, around 90% produced no dividend return to creditors and around 50% had remaining assets of under $10,000.
Likewise, of the over 18 million adults, less than 12,000 went personally insolvent. This was higher than the 9,930 for 2022-2023, but was much lower than the long-term average of 23,100, and the 37,000 around the GFC,[1] on a lower population base.
Upwards of 40% of bankruptcies were business related. No dividends were paid in 85% of estates, with an average bankruptcy dividend of around 2c.
Hence, while individuals going bankrupt and companies going into liquidation are usually unhappy events, the frequency and number of insolvencies have to be seen in the larger national context, and over a longer term. Some more detail is found in the following comments.
Personal insolvency
Personal insolvency numbers [2] for 2023-2024 totaled 11,643, higher compared with 9,930 for 2022-2023, but a bit lower than AFSA’s prediction of around 12,250.
And much lower than the long-term average of 23,100, and the 37,000 around the GFC,[3] on a lower population base.
Also, there was a significant fall in June 2024 (851) from the month before (1,049), itself a low figure.
Generally, voluntary bankruptcies (90%) exceed court sequestration orders (10%); over 80% of bankruptcies will be handled by the Official Trustee, the remainder by registered trustees; debt agreements under Part IX generally comprise about one third in number, handled by debt agreement administrators; and personal insolvency agreements under Part X remain infrequent, handled by registered trustees.
During the same period, over 41% of bankruptcies were business related. These include debtors not only operating as sole traders or partnerships, but also those who have been a company owner or held a management role in a company.[4]
The most common source industries were construction, health care and social assistance, and “other services”. These have appeared relatively frequently in the high categories, along with retail.
Business-related personal insolvencies contribute over two-thirds of total system debt ($9.6 billion). The average debt for a business-related personal insolvency is $905,708 — over 6.6 times greater than the average debt for a non-business-related personal insolvency ($136,926).[5]
Also:
- in a selected year, 31% of bankruptcies paid no remuneration to the registered trustees.
- voidable transaction recoveries average only 5% of all receipts.
- trustee remuneration generally stands at over 25% of payments.
- average dividends have increased over the years, perhaps as a result of, or despite, “law reforms to increase returns to creditors”, from 1c/$ to 2c/$.
Corporate insolvency
While ASIC’s annual insolvency data showing more than 11,000 companies entering external administration for the first time in 2023-24, and while this is slightly higher than prior peaks seen in 2011–13, ASIC explains that the current numbers are in fact proportionately much lower as there are now nearly 3.4 million companies in Australia compared to around 2 million in 2012.[6]
That is, the current ratio of companies entering external administration compared to the number registered (0.33%) is still well below 2012-2013 (0.53%) levels.
Nevertheless, overall, the number of external administrations grew by 39% in 2023–24 compared to the low of 2022–23 with the top three industries being the same as in personal insolvency: construction (27%), accommodation and food services (15%) and other services (9%), which, combined, represented over half of total external administrations for 2023–24.
Small Part 5.3B corporate restructuring appointments grew by over 200% in 2023–24 compared to 2022–23 and now represent 12.9% of all external administrations.
The PJC Report on Corporate Insolvency 2023 reported these statistics [for most if not all insolvencies [7]]:
- the estimated assets are nil in 30% of most corporate insolvencies and under $10,000 in a further 20%.
- the estimated liabilities are over $100,000 in 60% of cases, with $250,000 to $1 million being the most frequent liability level.
- the dividends to creditors are estimated to be zero for around 90% of most insolvencies over the past 15 years.
- most administrations are estimated to complete within 5 months.[8]
The estimated number of insolvent companies that are deregistered by default under s 601AB is high.
Law reform
The government will give its law reform thoughts on these figures, and others, in response to the 2023 PJC Report on Corporate Insolvency.
One immediate reform the government has proposed, is to allow small businesses and others in financial distress, 28 days to respond to a bankruptcy notice, rather than 21.
Updated 25.8.24
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[1] State of the Personal Insolvency System Report | Australian Financial Security Authority (afsa.gov.au)
[2] Provisional. Provisional personal insolvencies decreased in June 2024 | Australian Financial Security Authority (afsa.gov.au)
[3] State of the Personal Insolvency System Report | Australian Financial Security Authority (afsa.gov.au)
[4] AFSA’s definition of business related does not seem to include those who have guaranteed a company’s business debts.
[5] Footnote 1
[6] Annual ASIC insolvency data reveals increase in companies failing | ASIC
[7] [2.34].
[8] [2.35].
