While there has been a substantial rise in business collapses, new data suggests they are not causing a spike in personal insolvencies.
Australian Financial Security Authority (AFSA) has released details of the root causes of personal insolvencies in Australia last financial year, and noted that “most personal insolvencies are not business related”.
“In [financial year] 2016-17, 82 per cent of debtors entering personal insolvency did so due to non-business related causes,” it noted.
The most common non-business related causes were: excessive use of credit (8,870 debtors); unemployment or loss of income (8,035 debtors); and domestic discord or relationship breakdown (3,222 debtors).”
Of those insolvencies that were related to business, economic conditions contributed the bulk (1,779 debtors). This was rounded out by personal reasons such as ill health (471) and excessive drawings (310).
It comes after ASIC revealed a 28 per cent spike in businesses falling into administration last quarter, which was dominated by Australia’s construction sector.
“It’s important for business decision makers to stay up-to-date on insolvencies and at-risk sectors so they can make smarter decisions when it comes to extending trade credit to certain organisations,” said Mary Ibrahim, head of client services at credit insurer and debt collection firm Atradius.