Saturday, June 15, 2024

Business failure wave flowing into personal insolvencies

Personal insolvencies are spiking as the cost-of-living crisis continues to bite and business failures trigger a ripple effect – and there’s more to come, says insolvency and business turnaround specialist Jirsch Sutherland.

The comments come off the back of the March quarter 2024 new personal insolvencies statistics from AFSA, which reveals an increase of almost 20% compared with the March quarter 2023.

According to the AFSA statistics, in the three months to March 2024, more than a quarter of personal insolvencies were business related, which Malcolm Howell, a Partner with Jirsch Sutherland, says “isn’t surprising”.

“There’s been a marked increase in corporate insolvencies and the domino effect continues to reverberate across personal insolvencies,” Mr Howell said.

“It’s almost a guaranteed cycle: following a period of business failures there’s often a spike in personal (or consumer) insolvencies months down the track as creditors ‘call in their markers’. But there’s also a lot of non-business-related causes, and in the current economic environment the number of financially distressed individuals has been ‘turbo-boosted’ by high interest rates, tax debt and cost of living pressures.”

The latest AFSA figures reveal that new personal insolvencies were highest in NSW (885); followed by Queensland (759, with regional personal insolvency numbers higher than in the capital city); Victoria (579); and Western Australia (239). The number of personal insolvencies declined in Tasmania (53), while they stayed the same in South Australia (174).

“It’s interesting to note a significant increase in the number of debt agreements (19%) during the quarter,” said Mr Howell.

“Debt agreements, also known as Part IX agreements, are a formal way of settling most debts without going bankrupt. However, it must be remembered that they don’t release you from all debts and can affect your ability to obtain future credit. That’s why it’s important to speak with a registered bankruptcy trustee to provide you with the best possible guidance.”

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