A surprising end to the third quarter
Recently, the Australian Financial Security Authority (AFSA) released the personal insolvency statistics for the September quarter 2018 and it was something of a surprise. After four consecutive quarters of increases, we saw a significant decline in personal insolvency activity. Overall, personal insolvencies fell 9.7% in the September quarter 2018. This significant drop saw activity reach its lowest level since December 2016.
Personal insolvencies fell across all three types of appointment. Bankruptcies fell 6.8%, debt agreements almost doubled this with a drop of 12%, and personal insolvency agreements, whilst by far the smallest in volume, fell the most significantly with a decline of 49.3%.
Geographically, all states/territories saw a reduction in total personal insolvencies, except New South Wales (NSW), which experienced a small rise of 0.4%. The rise in NSW was due to growth in debt agreements, with NSW being the only state other than the Australian Capital Territory (ACT) to see an increase in debt agreements.
Western Australia (WA) was the only state to record growth in bankruptcies, while South Australia (SA) recorded the lowest number of bankruptcies on record and Tasmania (TAS) recorded the lowest level since 1989—almost 30 years.
The reason for the significant national decline is not clear, however, the Westpac Consumer Sentiment Index saw a sharp increase through July and August 2018. Improved consumer sentiment may have contributed to less individuals opting for personal insolvency. Looking ahead we see this quarter as an outlier rather than a new trend. The Westpac Consumer Sentiment Index has since fallen through September and October 2018 and the general economic outlook has worsened, so a return to growth in personal insolvencies is expected.
One-year bankruptcy update
Over the last year we have speculated about the eventual passing of the Bankruptcy Amendment (Enterprise Incentives) Bill 2017, which would reduce the bankruptcy period from three years to one year, and the impact this would have on the personal insolvency mix. In particular, an expected decrease in debt agreements popularity.
With a change of leadership in Canberra, the Bill appears to be fallen in priority and it now appears unlikely that it will be passed this year. In fact, given the parliamentary scheduled proposed for next year and a likely federal election in May 2019, it is unlikely that the Bill will be considered again until late 2019.
As a result of that delay, debt agreements will likely remain popular and we may see them surpass bankruptcy to become the most popular form of personal insolvency.
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