Company failures drop
Reprieve hinges on interest rates, analysts warn
THE number of companies hitting the wall has dipped, statistics reveal, although retailers continue to be well represented among the victims.
Some 590 companies went insolvent in April, down 21 per cent on a month earlier, according to insolvency specialist FTI Consulting.
That’s a marked improvement on a month earlier, when the number of insolvencies climbed 29 per cent, which fol- lowed a 45 per cent spike in February.
The analysis comes in the wake of several high profile retail collapses, including the Australian arm of British fashion house Topshop, David Lawrence, Masters, Pumpkin Patch, Payless Shoes and Marcs and ahead of yesterday’s administration of free-toair broadcaster Ten Network.
But the reprieve in the wider business sector could be short lived if interest rates rise and property values fall, FTI said. Many small businesses have their finances hitched to residential property and mortgages, the company’s corporate restructuring director Quentin Olde said.
“While statistics remain lower, there are undoubtedly headwinds in some sectors including retailers in personal and consumer products, apparel and household goods, including furniture and technology,” Mr Olde said.
“And any change to consumer sentiment or an upward movement in interest rates could have an impact.”
He said April’s improved result was likely due to the low interest rate environment and the buffer created by the east coast housing price boom, al- lowing small businesses to maintain sufficient liquidity.
“As housing prices increase, small business owners are afforded access to further credit via redraw facilities or refinance of the family home. And this, coupled with low interest rates and positive sentiment, results in (more) investment in small business and lower failure rates,” he said.
During April, Victoria was the only state to experience a rise in companies entering administration, up 3 per cent to 182. NSW had the most insolvencies, at 197, down 31 per cent on March’s 288. Queensland fell 33 per cent to 105, SA was down 31 per cent to 20, while WA fell 9 per cent to 67.
During the first four months of 2017, the number of company failures was down 20 per cent to 2307, compared with last year. However, the analyst expects this may climb again as the year continues.