Insolvency related practitioners are in for a busy year as significant factors combine to push more and more Australian companies into collapse or administration.
 
Freehills partner and national president of the Australian Turnaround Management Association, John Nestel, predicts a growing number of Australian small to medium enterprises (SMEs) will fall into administration or insolvency as a result of the tightening credit market in Australia. “I think it’s certainly the case that there will be a large amount of insolvency related re-structures in the next 12 to 18 months,” said Nestle. “Firstly, because of withdrawal from the Australian banking market of a number of European banks and secondly the fact that there is a significant amount of refinancing that is due during the course of the next 12 months.”
 
The refinancing requirements of the top end of town are set to absorb an ever decreasing amount of debt capital available in the Australian debt market according to Nestel. “A very concerning knock-on effect is that when that refinancing and demands of the big end of town absorbs that depleted amount of debt capital it significantly decreases the amount of funds available for the SME sector,” he said.

Nestel adds that the European debt crisis and the introduction of Basel III on local lending institutions are compounding the situation. “I am a bit of a pessimist. I think 2012 could be as bad as 2010 was. It has the hallmarks of those circumstances,” he added.
 
However, these factors are not the only ones likely to push up the number of insolvencies and therefore workload for lawyers in the field. According to Thomsons Lawyers partner Peter Hegarty the Australian Taxation Office (ATO) is also instigating an increasing number of insolvencies or wind-ups. “The ATO has adopted a much firmer approach in their debt collection procedures,” said Hegarty. “The approach they were taking during the financial crisis was a fairly accommodating one. What is happening now is that there is a second wave of companies in financial difficulty and that level of accommodation is not there.”
 
In the 2010/2011 financial year the ATO instigated 1,066 wind-ups, in the 2009/2010 financial year it was 493, representing an increase of 116 percent. “The ATO is a bigger factor than the tightening of credit,” said Hegarty. “It has always been a driver of insolvencies and will continue to be.”