ob体育 today published its annual overview of corporate insolvencies based on statutory reports lodged by external administrators for the 2016鈥�17 financial year.
Report 558听Insolvency statistics: External administrators鈥� reports (July 2016 to June 2017) (REP 558) provides information on the nature of corporate insolvencies, supplementing the monthly statistics that ob体育 publishes on its website.
An external administrator's role includes investigating company failure and reporting both to creditors and ob体育.
ob体育 uses external administrator reports in its work, including in reporting to the market on corporate insolvency.
Key points
- There was a material decline in reports received during the 2016鈥�17 financial year (down 17.9%) reflecting the overall downward trend (down 18.4%) in external administration appointments for 2016鈥�17
- Small to medium size corporate insolvencies dominate external administrators鈥� reports. Of note, 84% had assets of $100,000 or less; 79% had fewer than 20 employees; and 43 per cent had liabilities of $250,000 or less.
- 96% of creditors in this group received between 0鈥�11 cents in the dollar, reflecting the asset/liability profile of small to medium size corporate insolvencies.
- ob体育 requests supplementary reports from practitioners
(819 in 2016鈥�17) where a report meets certain thresholds (see听Annexure 2). - Over the last three years on average fewer than 20% of supplementary reports received resulted in ob体育 taking further action, generally due to the lack of sufficient evidence or because ob体育 considered no further action was required.
- Practitioners advised that they had either commenced or were contemplating initiating recovery actions for insolvent trading for 1,516 reports, compared to 4,878 reports alleging a civil breach for insolvent training.
Annexure 1:听 Reporting of alleged insolvent trading
Following are key points concerning alleged insolvent trading based on external administrator reports:
Table 1: Overview of insolvent trading allegations
| 听听
Alleged insolvent trading |
听听
Civil breach |
听听
Criminal breach |
|
No听of reports alleging insolvent trading |
4,878 reports (62.8%) |
1,117听reports (1.5%) |
|
No听of reports alleging insolvent trading that had evidence to support allegation |
3,909听out of 4,878 reports (80.1%) |
85听out of 117 reports (72.6%) |
|
Estimated听debts incurred after date of insolvency of less than $1million |
3,105听out of 3,909 reports (79.4%) |
59听out of 85 reports (69.4%) |
|
Estimated听debts incurred after date of insolvency of more than $5 million |
74听out of 3,909 reports (1.9%) |
4听out of 85 reports (4.7%) |
|
Top听 three indicators 鈥� grounds for director to suspect insolvency |
Non-payment of statutory debts (PAYGW, SGC and 听 GST) (3,002 reports, or 76.8%) Difficulties paying debts when they fell due (eg. evidenced by letters of demand, recovery proceedings, increasing age of 听 accounts payable (1,942 reports, or 49.7%). Financial statements that disclose a history of听serious shortage of working capital, unprofitable trading (1,843 reports, or听47.1%) |
Non-payment of statutory debts (PAYGW, SGC and 听 GST) (54 reports, or 63.5%)
Difficulties paying debts when they fell due听(e.g. evidenced by letters of demand, recovery proceedings, increasing age of 听 accounts payable (39 reports, or 45.9%). Financial statements that disclose a history of听serious shortage of working capital, unprofitable trading (38 reports, or听44.7%) |
Annexure听2: Allegations of misconduct
REP 558 details how often external administrators report alleged misconduct by company officers and the types of alleged misconduct most frequently reported. In the 2016鈥�17 financial year, external administrators reported alleged misconduct for 6,558 reports out of the 7,765 lodged, or 84.5%.
Our next step (prior to requesting a supplementary report from external administrators or initiating an investigation) is to assess the report of misconduct based on a number of factors, including, but not limited to:
- the nature of the possible misconduct reported
- the amount of liabilities
- the deficiency suffered
- the availability of evidence
- prior misconduct, and
- the external administrator's advice as to whether the reported possible misconduct warrants further investigation.
After assessing the reports, ob体育 asked external administrators to prepare 819 supplementary reports where external administrators alleged company officer misconduct. This amounted to 12.5% of all reports that alleged misconduct lodged in the financial year.
Supplementary reports are typically detailed, free-format reports, that set out the results of the external administrator's inquiries and the evidence they have to support alleged offences. Generally, ob体育 can determine whether to commence a formal investigation on the basis of a supplementary report. While only a portion of the offences reported may result in a formal investigation or surveillance, ob体育 uses the information for broader intelligence and targeting purposes.
Over the last three financial years, after assessment, ob体育 referred on average between 17-19% of these cases for investigation or surveillance (see table 2 for a breakdown of outcomes).
Table 2: Supplementary reports by outcome
|
Outcome |
2016-17 |
2015-16 |
2014-15 |
|
Un-actionable |
听 | 听 | 听 |
|
No offence |
1% |
1% |
<0.5% |
|
Analysed/assessed for no further action by ob体育 |
听 | 听 | 听 |
|
Requested further report |
14% |
15% |
17% |
|
Insufficient evidence |
32% |
41% |
43% |
|
No action |
35% |
24% |
23% |
|
Referred for action by ob体育 |
听 | 听 | 听 |
|
Referred for compliance surveillance or enforcement |
16% |
16% |
14% |
|
Assist existing investigation or surveillance |
2% |
3% |
3% |
Source: ob体育 annual report 2014-15, 2015-16 & 2016-17
ob体育 considers a range of factors when deciding to investigate and take enforcement action as detailed in Information Sheet 151 ob体育's approach to enforcement ().
Annexure 3: Profile of insolvent companies
REP 558 includes information about the profile of companies placed into external administration, including:
- industry types
- employee numbers
- causes of company failure
- estimated number and value of a company鈥檚 unsecured creditor debts, and
- estimated dividends to unsecured creditors.
Table听3 summarises key data from the report.
Background
REP 558 is ob体育鈥檚 seventh annual report and ninth report since external administrators鈥� reports could be lodged electronically. Here are links to our last three reports:
- REP 507 (refer ) 鈥� Annual Statistics for 2016鈥�2017
- REP 456 (refer ) 鈥� Annual Statistics for 2014鈥�2015
- REP 412 (refer ) 鈥� Annual Statistics for 2013鈥�2014
Table 3: Summary of key data from REP 558
| 听听
Profile of companies |
听听
2016-17 听听 |
听听
2015-16 听听 |
听听
2014-15 |
|
No.听of employees affected |
79% of reports concerned companies with fewer than 20 employees |
79% of reports concerned companies with fewer than 20 employees |
79% of reports concerned companies with fewer than听20 employees |
|
Industries听with most lodgements |
Other (business and personal) services听 (2,230 reports, or 29%) Construction (1,611 reports, or 21%) Accommodation and food听services (884 听 reports, or 11%) |
Other (business and personal) services (2,889 听 reports, or 31%)
Construction (1,964 reports, or 21%) Accommodation and food services (928 reports, or 听 10%) |
Other (business and personal) services (2,351 reports, or 28%)
Construction (1,771 reports, or 21%) Accommodation and food services (870 reports, or 听 10%) |
|
Assets听and liabilities |
84% of failed companies had estimated assets of听$100,000 or less 43% of failed companies had estimated liabilities of $250,000 or less |
86% of failed companies had estimated assets of听$100,000 or less
46% of failed companies had estimated liabilities of $250,000 or less |
85% of failed companies had estimated assets of $100,000 or less
41% of failed companies had estimated liabilities of $250,000 or less |
|
Deficiency |
64% of failed companies had an estimated deficiency of $500,000 or less |
65% of failed companies had an estimated deficiency of $500,000 or less |
64% of failed companies had an estimated deficiency of $500,000 or less |
|
Top听3 nominated causes of failure |
Inadequate cash flow or high cash use (3,626, or 听 47% of reports) Poor strategic management of business (3,542, or听46% of reports) Poor听financial control including lack of records (2,753, or 35% of reports) |
Inadequate cash flow or high cash use (4,318, or 听 46% of reports) Poor strategic management of business (4,315, or 46% of reports) Poor financial control including lack of records 听 (3,183, or 34% of reports) |
Inadequate cash flow or high cash use (3,647, or 听 44% of reports)
Poor strategic management of business (3,518, or听42% of reports) Trading losses (2,836, or 34% of reports) |
|
Top听3 alleged possible misconduct |
s588G(1)鈥�(2) Insolvent trading (4,878, or 63% 听 of听reports) s180 Care and diligence Directors鈥� and officers鈥� 听 duties (3,818, or 49% of reports) s286 and 344(1) Obligation to keep financial 听 records (3,335, or听43% of reports) |
s588G(1)鈥�(2) Insolvent trading (5,736, or 61% of听reports) s286 and 344(1) Obligation to keep financial听records (3,957, or 42% of reports) s180 Care and diligence |
s588G(1)鈥�(2) Insolvent trading (4,856, or 58% of听reports) s286 and 344(1) Obligation to keep financial 听 records (3,209, or 38% of reports) s180 Care and diligence |
|
Dividends听to unsecured creditors |
In 96% of cases, the dividend estimate was less than 11 cents in the dollar |
In 97% of cases, the dividend estimate was less than 11 cents in the dollar |
In 97% of cases, the dividend estimate was less than 11 cents in the dollar |