SA insolvencies dip as government launches review into insolvency regime

A review into Australia’s insolvency regime has been launched as 17 additional SA businesses go into liquidation – and amid economic volatility expected to tip more companies over.

Business failures in South Australia dipped to near record lows in September, despite the economic volatility that has prompted the federal government to launch a wide-ranging review into the country’s insolvency regime.

Federal parliament’s Joint Committee on Corporations and Financial Services announced last week that it would review current bankruptcy laws, including the role of regulators such as the Australian Securities and Investments Commission (ASIC), the effectiveness of temporary Covid-19 insolvency measures and fees paid to liquidators.

It will be the most extensive review into the country’s insolvency system in more than three decades.

Oracle Insolvency Services partner Nick Cooper said the insolvency regime had become unnecessarily complex, and there were several areas that needed reform, including the small business restructuring and simplified liquidation processes that were introduced last year.

“The industry has not been reviewed in this way since the 1980s and there is now a real opportunity to look at simplifying some processes,” he said.

Oracle Insolvency Services partner Nick Cooper. Picture: Tom Huntley

“We believe there needs to be changes to the small business restructure process. This has had minimal uptake and we see the reason for that is that the eligibility criteria are far too restrictive.”

Small business restructuring and simplified liquidation were introduced to streamline the insolvency process for small businesses.

However Mr Cooper said that by taking powers away from liquidators, including the power to hold creditors’ meetings, simplified liquidation often made it more difficult to compromise debts with creditors.

In the terms of reference released last week, the committee proposes several potential areas of reform including unfair preference claims and safe harbour provisions that provide protection to directors from insolvent trading laws when they’re trying to restructure their business.

The ATO’s approach to debt collection will also be reviewed.

The tax office has been ramping up its debt collection activities in recent months, driving higher the number of corporate insolvencies at a national level.

ASIC figures show that more than 700 firms entered into external administration or liquidation in July, the highest number since November 2019 and more than double the lows of 2020 and 2021, when temporary changes to insolvency laws were implemented to protect businesses from the worst of Covid-19.

However in South Australia, there were just nine insolvencies in September, down from 21 in August and falling to the lowest level since February this year.

Local companies to hit the wall in September included Seaford-based Seasalt Joinery, Moonta Plumbing & Gas and Mawson Lakes company Re-N-Force Steelfixing.

While the ATO has prioritised larger debts in the eastern states, the industry expects its attention to soon turn to South Australia and other smaller states.

“With Covid presenting unprecedented global economic challenges the ATO was understandably lenient on business and we’re still not really seeing it actively wind up troubled companies,” Mr Cooper said.

Oracle Insolvency Services partners Dominic Cantone, Yulia Petrenko and Nick Cooper.

“However, it has now sounded the alarm that it’s looking to call in debts. Fifty thousand warning letters were sent out nationally to businesses in March. The message is that businesses who are behind in their taxes need to be speaking to the ATO now.

“With the economy emerging from Covid we would suggest that it may be time for ASIC to start looking at whether some of the so-called zombie companies should now be wound up. We are seeing creditors who’ve been owed money for a substantial amount of time.”

Submissions to the inquiry close on November 30. The committee expects to table a report in parliament by May 30.