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Attitude & Corporate Insolvency Profiles 2016

Bruce Gleeson
Bruce Gleeson

One of my favourite Winston Churchill's quotes is so relevant to directors and owners in Micro, Small and Medium Enterprises ("MSME"). That is: "attitude is a little thing that makes a big difference".

In December 2016, ASIC released its annual overview of corporate insolvencies based on statutory reports lodged by external administrators (i.e. predominantly voluntary administrators and liquidators) for the 2016 financial year (see ASIC website 16-436MR).

Summarised in the table shown are some key trends emerging from the collation of the data over the 2014, 2015 and 2016 financial years. Of particular note, is that MSME's again dominate the corporate insolvency landscape.

Whilst it is acknowledged that this data may be somewhat subjective because it has been filed by the external administrator, the data has been collated over at least six (6) years and hence some of the trends are noteworthy and instructional for owners and advisors.

Typically in my experience as a Registered Liquidator, MSME's are at a higher risk of failure not only in the early phases, but also at other pivotal periods. MSME's quite often have a lack of key resources (particularly key people) and this can quite often become a major issue. Coupled with management not always having the "right attitude" the business can quickly be adversely impacted. Equally the opposite is true. It is not to say that management is not working hard, but it comes back to having the right strategy and attitude and executing on it.

MSME's just like bigger companies must understand their key advantages and play to these, as well as continually re-evaluating and re-adjusting their business strategy as the business evolves. This is critical.

A key factor coming out of the ASIC release is that unpaid taxes account for approximately 65% of liabilities in the $250,000 or less category. This is not as surprising as some might think - but it does reveal a tendency for MSME's to use the ATO as the lowest priority unsecured creditor. Remember directors can be personally liable for PAYG and SGC debts of companies in certain circumstances.
Relevantly in the 2016 MYEFO the Government announced its intention from 1 July 2017 to inform credit reporting agencies about the tax position of businesses that have not effectively engaged with the ATO where the debt is more than $10,000 and at least 90 days overdue. This aim is to encourage businesses to pay tax debts in a more timely manner. If this intention becomes reality, I expect that it will cause MSME's difficulties if their tax affairs are not kept in good order.

So as we start 2017, I encourage directors and owners of MSME's to review their business strategy with the right attitude and if things are not heading in the right direction to seek advice at the earliest possible time from a qualified and registered professional.

Jones Partners offers a complimentary free consultation if you would like to have a confidential discussion about your business.

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