In increasingly pressurised corporate environments, the number of companies forced into some form of insolvency has risen dramatically in the past year.
According to a recent report, the number of companies entering into a form of insolvency administration is up 25 per cent from the average of the last five years, while the seven months to November 2008 were the worst recorded since 1999.
The results from the Business Stress Report, commissioned by Restructuring Works, a restructuring professionals group, showed very few companies are restructuring successfully, with only 5.5 per cent of insolvent companies managing to do so — a success ratio of one in 18 — compared to 14 per cent in 1999.
The report also noted that the value of All Bank New Assets Impairment Charges has more than tripled in the year to September 2008, sitting at $13.3 billion, up from the average of $3.7 billion from the last five years.
According to Restructuring Works chief executive Cliff Sanderson, while it was generally understood that corporate insolvencies increased significantly last year, “what has not previously been appreciated was that the value of insolvencies has more than tripled and that secured creditors are taking possession of assets far more commonly”.
Sanderson expressed worry about the effectiveness of Australia’s insolvency laws. “It’s a real concern that only one in 18 companies that enter a formal insolvency procedure find their way through the insolvency legislation and creditor negotiations to agree to a restructuring.”
Sanderson said the restructuring success rate is extremely low and trending lower. “Our research makes it clear that the restructuring laws in Australia are just not working.”
