Insolvency Outlook
John Winter Chief Executive Officer ARITA – Australian Restructuring Insolvency & Turnaround Association
To say that we continue to live in strange times
Of course, this doesn’t at all align with the general
would best be described as an understatement.
publics or the media’s view of what is happening
For those of us in the restructuring, insolvency and
in the economy. The perception persists that these
turnaround market, the conditions we see continue
must be halcyon days for insolvency practitioners
to defy the old rule book.
when, of course, the opposite is true.
Where did all the insolvencies go?
Indeed, you might have expected to see an increased take up of advisory work to help
The number of formal insolvencies in Australia
businesses navigate the turbulent times but
halved after March 2020. While this is a global
that didn’t transpire either. “Safe harbour”
phenomenon found across most developed
and other advisory work has also fallen to low
economies it has been driven in Australia by:
levels based on anecdotal feedback from our
z Massive stimulus (also global driver)
members. Though, we do know that a lot of
z Largely “free” money through low interest rates (also global) z Protections on enforcement especially commercial leases and loans z ATO withdrawing all enforcement activity z General “signalling” from the Government e.g. temporary insolvency protections leading directors to believe that their insolvency issues
major companies, especially listed ones, did undertake a safe harbour engagement as a risk management strategy for if market conditions worsened sharply. This use of the regime was less about actual genuine concerns about insolvency than it is simply a wise insurance policy for directors and ensured that they had a “Plan B” readily to hand if conditions worsened.
were not problematic. Of course, the lack of formal appointments and Despite most of those measures having either
the parallel reduction in informal advisory work
been fully or largely wound down, the level of
to financially distressed businesses, implies that
insolvency activity has not recovered. We are still
directors saw stimulus and protections as a “get
at 40-50% below pre-COVID levels of external
out of jail free card” and have simply ignored
administrations.
their director obligations and kept trading.
“Despite most of those measures having either been fully or largely wound down, the level of insolvency activity has not recovered. We are still at 40-50% below pre-COVID levels of external administrations.” 10
AICM Risk Report 2022
