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Law firm Taylor David is cautioning that Australians will soon experience widespread personal and business insolvencies in greater numbers than encountered during the 2008 Global Financial Crisis (GFC).
The finance law specialist claimed the number of companies facing financial headwinds was widespread across all sectors due to surging interest rate rises, cost-of-living pressures and the aftermath of COVID-19.
The press release also highlighted an increase in personal insolvencies, with research from the Australian Financial Security Authority (AFSA) revealing that during January 2023, there were 772 new formal personal insolvencies, up from the 612 recorded in December 2022.
The December quarter of 2022 saw 2321 personal insolvencies, and these comprised 1344 bankruptcies, 937 debt agreements, and 28 personal insolvency agreements.
According to Taylor David, over 50 per cent of household fixed-rate mortgages are on the books to expire this year, and increased repayments will significantly impact wider community households.
Scott D. Taylor, a partner at the firm, stated that while the level of enquiry into insolvencies declined throughout COVID, the past six months have seen levels skyrocket.
“In many ways, what we’ve seen over the last six months is the tip of the iceberg,” Mr Taylor said.
“When you start seeing global banks getting anxious, being sold off or collapsing, it’s a clear indication of wider uncertainty, with more to come.”
As the government forfeits all stimulus packages handed out during the pandemic, Mr Taylor believes the “real” financial impact of the post-pandemic period has only recently hit the balance sheets of businesses.
“The Australian Tax Office quite rightly showed some leniency during the COVID-19 period. However, there are many businesses that have not paid tax for the last two years,” Mr Taylor said.
“With the ATO now back in enforcement mode, it’s inevitable that many of these businesses will be turning off the lights for good.
“In a practical sense, there are consequences for business owners who have swept their financial turmoil under the rug.”
The lawyer said that business owners had to face up to the consequences of downplaying their financial struggles and that most of them weren’t going to come out on top.
Even major banks are feeling the pressure of their financial load, like the very public struggles of the Silicon Valley Bank and Credit Suisse, which has led customers to panic about the safety of their savings.
Mr Taylor stated that one mechanism some may be acting upon was to diversify assets across more than one financial institution.
“What happens is that people become nervous and start selling down,” Mr Taylor said.
“Global markets have been struggling since the middle of last year, and they still have a long way to go, and consumer confidence has declined.”
The firm told The Market Herald it would be difficult to guess when financial stability might ease across the country, with the expectation that insolvencies would occur across most economic sectors, including construction, manufacturing, and logistics.
“It is my view that the ongoing impact will likely be broader and harder felt than the global financial crisis of 2008,” Mr Taylor said.
Taylor David is urging businesses to be proactive now before it becomes too late.
“We can provide advice, restructure and potentially turn them around,” Mr Taylor said.
“It is our goal to ensure that our clients are well-equipped to navigate the challenging financial environment ahead.”
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