Insolvencies climb 10% in April

The number of businesses declaring insolvency climbed 10% year-on-year in April, according to recent research.

The June 2011 Business Stress Report, published today by liquidation company Dissolve, shows that 812 companies entered some form of insolvency administration in April.

This is the highest April number since Dissolve started taking records in 1999, and is 23% higher than the average over the previous five years.

The company added that its previous research indicates that the number of insolvencies has been trending back up since the recovery following the crisis.

And insolvency levels should remain high for the rest of 2011 due to the backlog of pending recovery actions at the ATO.

For the 12 months ending in April, the number of insolvencies grew 6% on the prior year - and 16% on the five-year trend - to 9,747.

The estimated percentage of companies which successfully restructured to emerge from administration – calculated from the portion that execute a deed of company arrangement – was just 5.1% for the year to April. The proportion has been trending down since 1999, when it was recorded at 14.2%.

But among companies entering voluntary administration – a process designed to maximise the chances of restructuring – the percentage was 33.9%.

Dissolve estimates that the cost of new impaired assets for Australian banks – which it says is a useful indicator for the cost of insolvencies - was $5.1 billion for the March quarter. This is below the peaks of the financial crisis, but well above the averages from beforehand.

For the year to March, new asset impairment charges fell to $22.3 billion, from a high of $36.1 billion in the prior year.