PPSR pressure after increased insolvency levels

The importance of registering on the Personal Property Securities Register (PPSR) has become increasingly evident as Australian companies see a steady increase in insolvencies and fall in cash flow.

 

Total Australian insolvency appointments were little changed at 3,690 in the June quarter 2012, but are noticeably higher than Global Financial Crisis (GFC) levels of 3,5691 (refer to graph on right). This is due to a struggling and uncertain economy, which has become evident through an increase in trade payment days to 53.6 days in the June quarter 20122 (refer to graph below).

The number of Australian firms paying bills on time fell to 16.5% in 4Q FY2012, while the number of trade payments made after the standard 30-day term was 62% or two-thirds of total payments. The amount of severely delinquent payments (90+ days overdue) also jumped 1.4% quarter-on-quarter and 13% year-on-year.

Small businesses recorded the most significant deterioration in payment terms, with payment days increasing by 2.2 days to 53.2. Cash flow issues within the SME sector are likely to have a knock-on effect to larger businesses and the rest of the economy.

Several notable insolvency cases since the introduction of the PPSR in January 2012, including WOW Sight and Sound and Super Butcher, have seen many unsecured creditors unlikely to recover outstanding payments due to their failure to register on the PPSR. WOW and Super Butcher were put into administration in February and April of this year, respectively.

Meanwhile, although there has been a small reprieve in voluntary administrations to 387 in the March quarter (refer to graph below); levels of voluntary administrations have little changed since the 2009 GFC, according to recent Australian Securities and Investments Commission (ASIC) data1.

Voluntary administration is where the company or board voluntarily elects to appoint an administrator, in circumstances where the company is already under significant financial hardship.

Unlike external administration, voluntary administration may offer those outside the company little forewarning of distress, as thereare no court actions or notices. In these circumstances, creditors and suppliers are more likely to be caught unaware and unregistered on the PPSR.

The current uncertain economic environment and high insolvency rate has emphasised the importance of creditors and suppliers to register their security interests on the PPSR. Similarly, companies will need to closely monitor both their suppliers and creditors to remain on top of market changes.

From Globalx

Insolvency issues for directors of not-for-profit companies

The recent liquidation of a large college in Victoria which displaced over 1200 students, is a reminder to directors of not for profit (NFP) organisations of their duties. Even though directors in this sector are sometimes ‘well meaning amateurs,’ they play an important function and carry the burdens and responsibilities that accompany the office of a director.

In the current economic climate, NFPs face increasing demand for their services and a decreasing supply of funds from corporates and individual donors. They and their directors may face difficult times. In this context, the governance and accountability of the NFP board are significant issues that are worth revisiting.

Please read this excellent article from Cleardocs if you are on the board of a not-for-profit organisation to refresh your understanding of the responsibilities and risks of holding such a position

Director penalty noitces – changes delayed

We have an update to our previous reports that the government is looking to extend the current Director Penalty Notice regime from unpaid PAYG to include unpaid superannuation.

Yesterday, directors were given a temporary reprieve from the potential of personal liability to meet employees’ superannuation obligations but it is only temporary.

Bill Shorten the assistant treasurer said the measure would be re-introduced in early 2012 following more consultation with stakeholders.

So, for the time being, it remains that Director Penalty Notices relate only to unpaid PAYG – but change is likely in 2012.