The big revert. The great tsunami. The cataclysmic cascade as the wall of government intervention damning insolvency’s normal rate of appointments was finally breached.
It didn’t happen. Despite moratoriums on insolvent trading being lifted and restrictions on statutory demands being relaxed directors defied exhortations to come out from underneath the doona.
Insulated from consequence they dozed through the pandemic and in the aftermath hit mute until the beginning of this year when the ATO doused them with a brimming bucketful of DPNs.
That helped. Appointment rates began to rise, albeit from an improbable and artificially low base.
And despite the tsunami’s failure to materialise, there remains an expectation within the profession that the level of formal insolvency appointments must return to something more in line with the long term historical average.
If the latest numbers from CreditorWatch are anything to go by, 2023 will do nothing to diminish that view.
In its November Business Risk index (BRI) the credit agency found that the general business momentum usually accompanying Christmas and the end of the year has failed to materialise.
While the Reserve Bank of Australia’s (RBA) forceful cash rate response looks at this stage to have taken the froth out of inflation, CreditorWatch’s key trade indicator, trade receivables, continues to trend downwards while external administrations surged 26 per cent from October to November, and are up 24 per cent year-on-year.
“The number of credit enquiries undertaken by businesses has increased by a massive 87 per cent year-on-year and is up 61 per cent since last month, reflecting increased caution among businesses and consistent with declining business confidence reported by the NAB Business Confidence Index,” CreditorWatch said in a statement issued this month.
In September CreditorWatch CEO Pat Coghlan warned that B2B trade payment defaults remain well above levels seen in September last year during Covid, and are a lead indicator of future defaults.
““Payment defaults are hugely significant and are a key indicator of coming delinquency for the debtor/customer,” he said.
“Approximately 25 per cent of businesses with a default end up in administration within 12 months.
“Additionally, it puts pressure on the supplier who will now have to shoulder that bad debt. A business with a trade payment default is 7 times the default risk compared to a business with a clean payment record.”
We know insolvency rates lag the real time economic conditions, particularly when governments borrow to protect businesses from harsh realities like pandemic closure measures or rocketing energy costs.
If however the trends in trade receivables, credit inquiry and default rates aren’t diverted by the RBA’s inflation control measures then 2023 might be the year the tsunami prophecy comes to pass.
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