A rise in bankruptcy forecast

Written on the 12 May 2009

 

A BOND University economics professor has warned the Australian business and finance sector that an increase in bankruptcy is likely in final quarter of this financial year.
Professor Kuldeep Kumar predicts total bankruptcies in Australia to increase by 7900 in the second quarter of 2009. The breakdown of which will most likely include 6700 personal bankruptcies and more than 1150 business-related falls.
“Usually, a seasonal pattern sees a significant rise in bankruptcy rates during the second quarter of each financial year,” says Kumar.
“This is largely due to individuals and small businesses wanting to avoid tax and opting to declare themselves bankrupt just before the end of the financial year.
“The current conditions brought about by the global financial crisis now mean that regulatory bodies like APRA (Australian Prudential Regulation Authority) and ITSA (Insolvency and Trustee Services Australia) need to be even more alert and ready to make early identifications of failing businesses.
“Early identification can assist regulatory bodies in ensuring that business failure is ‘handled’ legally and any illegal activities resulting from these pressured conditions, such as avoiding taxes or diluting debt holders’ claims using substantial common stock dividends prior to failure, are conscientiously avoided.”
Kumar says the ATO must also monitor personal bankruptcy numbers.
“It is a bit too difficult to forecast how long the current financial crisis will last, or if Australia technically goes into recession, how long that recession will continue for. However, after every recession the market bounces back with even more vigor and for this we look forward,” he says.

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