Insolvency appointments continue to fall.
Insolvency appointments have continued its long-term downward trend in the March quarter of 2020.
The Australian Financial Security Authority (AFSA) released the personal insolvency statistics for the March quarter of 2020. Personal insolvencies continued their downward trend with a 16.5% decrease compared to the March 2019 quarter with only 5,319 new personal insolvencies.
Bankruptcies were down a further 6.4% taking them to their lowest level since the December quarter of 1990. However, debt agreements bounced back from their decade low last quarter, to see growth of 18.8%. Personal insolvency agreements also saw a modest rise of 8.6%.
The mix of reasons for entering personal insolvency has also seen a sharp change in the March quarter 2020, with a significant increase in the portion of insolvencies that are caused by non-business reasons.
The March quarter 2020 also saw a fall in the number of corporate insolvencies in Australia with a 2.6% fall.
The most significant decrease was seen in court wind-ups, where they fell 31%. The remainder of the types of appointment saw only small changes, with more registering moderate increases. The fall in court windups is mainly rated to reduced enforcement action from the Australian Taxation Office (ATO) near the end of the quarter in response to the bushfire crisis that impacted the east coast, and international travel restrictions and impacts on tourism as a result of the emergence of Coronavirus in China.
We expect the near-term outlook to be for a significant reduction in the number of all insolvency appointments. The Federal Government has instituted several measures that will reduce the pressure on individuals and companies to make an insolvency appointment. Measures such as the stimulus to business through the Cash Flow Boost and JobKeeper payments provide a buffer to keep business trading in the near term. While the moratorium on insolvent trading claims and the increased caps for being able to commence an insolvency appointment and enforce demands have reduced the pressure on directors and individuals to make insolvency appointments. The ATO has also placed a temporary moratorium on enforcement action. The ATO is a significant source of pressure leading to insolvency appointments of all types.
However, the effect of these measures will only be felt in the short term, with the measures due to expire in September. Once these measures expire, we expect the downturn in economic activity, coupled with a backlog of bad debts that have not been enforced, will lead to a significant jump in both personal and corporate insolvencies.