Insolvency Insights - Analysis of ASIC's April 2014 External Administration Appointment Statistics

Corporate Finance & Restructuring

July 4, 2014

The latest ASIC figures show that 686 companies entered external administration in Australia during April 2014, a six-year low for the month of April (from data dating back to 1999). 2014 has continued to record the lowest number of insolvencies for the start of a year since 2008, with 2,700 companies entering external administration in the first four months of the year compared to 3,447 in 2013.

Economic indicators for April remained negative on balance, although there were signs of ongoing resilience across the economy which may have accounted for the lower number of insolvencies in April and indeed the year to date, such as the labour market, economic growth, and mining exports.

This month, we take a closer look at the much debated and discussed issues surrounding the agriculture sector and the potential impacts on insolvency levels. As foreign investment into Australia’s agriculture industry continues to grow significantly, political debate around the threshold for foreign investment levels takes centre stage. What the debate has not identified is that these measures could reduce competition for larger rural properties, thereby lowering land values, says Ben Waters, Senior Managing Director and Head of our Agribusiness team in Sydney.

Mr. Waters continues by saying: “There is no doubt Australian agriculture is attracting a lot of foreign interest leading to investment, but there is also a historically high debt burden weighing on many operators. This debt level has increased significantly in recent times due to strong balance sheet growth, allowing continued borrowings, coupled with some significant weather events that have impacted production systems and farm gate returns. With credit availability still tight, many of these troubled assets are unable to be realised and vendors are still coming to terms with reset asset values.

It is expected that we will continue to see a reasonable level of deleveraging across the agricultural industry. This in many cases will be impacted by business succession issues adding further pressure to an already capital constrained agricultural sector."

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