Top 5 Bankruptcy Regions for the September Quarter 2018

We saw last month that Personal Insolvencies Fall in September Quarter 2018 however how does this breakdown across a suburb by suburb basis across Australia?

This month we look at the top 5 regions with the highest number of bankruptcies.

New South Wales

Across greater New South Wales we saw 1,371 people entering into bankruptcy however this is a reduction of 5.1% compared to the previous quarterly statistics.

Personal Insolvencies Fall in September Quarter 2018

The Australian Financial Security Authority (AFSA) are reporting that personal insolvencies fell 9.7% in the July to September 2018 quarter.

The personal insolvency statistics for this quarter show that the number of new total personal insolvencies reduced from 8,194 to 7,400 with only NSW recording a rise of 0.4% The rise in NSW has been attributed to an increase in consumer Debt Agreement Proposals (DAPs) and Personal Insolvency Agreements (PIAs). Bankrupties were at a record quarterly low in South Australia with Tasmania also recording their lowest quarterly level of bankruptcies since 1989.

Business related personal insolvencies, where an individuals bankruptcy is directly related to his or her proprietary interest in a business, represented 17.8% of total bankruptcies filed Australia-wide with the Australian Capital Territory recording the greatest increase across all States and Territories of 8.33% over the last 12 months.

Further information about the statistics can be read online at Guide to Personal Insolvency Statistics.

Debt Agreement Reform

The Bankruptcy Amendment (Debt Agreement Reform) Act 2018 received Royal Assent on Thursday, 27 September 2018 with a majority of the amendments commencing on Thursday, 27 June 2019.

The reforms have been passed in an attempt at tighter regulation and greater protections for people entering into Debt Agreement Proposals (DAPs). The Bill was passed in with several key amendments including:

• the prevention of a debtor from giving AFSA a DAP if the total proposed payments exceed the debtor's yearly after-tax income by a prescribed percentage;
• doubling the current assets eligibility threshold from $113,350 to $226,700. This is in response to the growing value of the Australian property market and will allow more debtors to enter into DAPs that were previously not eligble owing to the lower asset eligibility threshold;
• limiting the length of DAPs (in line with the current bankruptcy provisions) to 3 years however allowing debtors the flexibility to vary the DAP to a maximum of 5 years if there is unforeseen circumstances that are likely to prevent them from completing the DAP;
• allowing debtors who own or have equity in their principal place of residence to propose a DAP up to 5 years and to exempt those debtors from the requirement to comply with the payment to income ratio;
• providing the Official Receiver with the ability to reject a DAP that would cause undue financial hardship to the debtor;
• the setting of stricter practice standards for Debt Agreement administrators including compulsory registration; and
• the requirement for Debt Agreement Administrators to hold and maintain Professional Indemnity and Fidelity Insurances as a requirement for registration.

AFSA Regional Quarterly Insolvency Statistics June 2018

The Australian Financial Security Authority (AFSA) has recently released their regional personal insolvency statistics for the June quarter 2018.

Debtor increases were seen across all regional areas, except Greater Hobart and the Australian Capital Territory, between the March quarter 2018 and June quarter 2018. Wanneroo in Western Australia recorded the most personal bankruptcies being filed with 117 followed by Wyndham in Victoria (93) and Wyong in New South Wales (89).

The regional statistics report on all debtors who became bankrupt or entered into a debt agreement or personal insolvency agreement during the quarter. The number of debtors is measured as follows:

• The number of debtors who become bankrupt under a Debtor's Petition, Sequestration Order or Part XI Deceased Estate bankruptcy administration in the quarter.
• The number of debtors whose debt agreement proposal were accepted by Creditors in the quarter (Part IX Debt Agreements).
• The number of debtors whose personal insolvency agreement proposed were accepted by Creditors in the quarter (Part X Debt Agreements).

Release of New Bankruptcy Notice Warning

The Australian Financial Security Authority (AFSA) has recently published a fact sheet that they recommend be attached to all future Bankruptcy Notices.

The fact sheet, Warning - You May Be Declared Bankrupt, outlines to the Judgment Debtor the options available to them rather than ignoring the Bankruptcy Notice or unintentionally committing an act of bankruptcy.

AFSA claim that by providing this information it will potentially shorten the administrative burden on Creditors, Judgment Debtors and Trustees with the possibility of potential bankrupts making arrangements to repay their Creditors or contest a Bankruptcy Notice sooner rather than later.

Feedback can be provided to AFSA about the document via stakeholders@afsa.gov.au by 30 July 2018.

Source: AFSA Newsroom - July 2018

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Bankrupt Man Gaoled for Obtaining Credit

A New South Wales man has recently been sentenced to 7 months imprisonment after twice obtaining credit without disclosing to credit providers that he was an undischarged bankrupt.

The person in question was sentenced in January 2018 at Downing Centre Local Court following an investigation by AFSA. It was disclosed at the hearing that the person in question borrowed $1,020,000 from ANZ Bank and $960,000 from La Trobe Financial using the a different name. The person in question failed to disclose to both Creditors that he was an undischarged bankrupt under another name.

Magistrate Atkinson commented, in her view, that the matter was serious with the person in question not only failing to disclose the fact that he was an undischarged bankrupt but also that he provided false information on his credit applications. While the person in question appealed the sentence this was upheld last month with Judge Russell noting that the imprisonment was the only appropriate punishment in this matter owing to the persons criminal history.

The sentence is to be served by way of an Intensive Corrections Order.

Source: AFSA - May 2018

AFSA FY 2015 Bankruptcy Statistics

AFSA has released its provisional Bankruptcy Statistics for FY 2015, showing an overall decline in Bankruptcy.

There was a significant drop in the number of full Bankruptcies, over 7% Australia wide. This is likely because of an economic cycle of continuous record low interest rates with no major spikes in unemployment.

Part IX Debt agreements lifted slightly, an extra 200 cases (approx 2%).

 Bankruptcies Parts IV and XI 

Debt Agreements (Part IX)

Personal Insolvency Agreements (Part X)

Totals

Reasons for Bankruptcy in FY 2014

A pleasing trend to note is the steady decline in Bankruptcy since the peak during the financial crisis in FY 2009, with a drop of some 25% from these historical highs from approximately 32,000 to 24,000.

With the top 4 reasons for entering bankruptcy easily identifiable, there can be benefits to readily and quickly identifying these in your portfolio and appropriately using hardship provisions to reduce possible loss situation.

Reviewing these metrics as a percentage of bankruptcies, the breakdown by category is largely consistent from year to year. Of note is in the FY 2014 figures, a 2% drop in the number of bankruptcies due to excessive use of credit facilities. This is not surprising given the historical lows of interest rates Australia has experienced. It will be interesting to see if this remains steady or lifts above historical averages when interest rates go up.

These statistics were sourced from AFSA.

Bankruptcy and Debt Collection FY 2014 Statistics by Occupation

Reviewing the AFSA Bankruptcy statistics for individual bankruptcy occurrences can be an interesting exercise when assessing the risk of any one particular industry that your business might be associated with.

When analysing statistics one must be careful to always keep statistics in context. These statistics were sourced from AFSA.

Our first observation is that Bankruptcy occurs on only 0.17% of the employed workforce across all sectors. The lowest sector is the professional sector with only 0.07% and the highest sector being Machinery Operators and drivers with only 0.24%.

Education Professionals, a subset of the Professional group below, experiences only 0.04%, whilst bankruptcy for road and rail drivers is 0.34% of the employed workforce.

Our take from this is that it is interesting to note from a debt collection perspective, as an overall % the instances of bankruptcy are very low compared to the total workforce. And whilst a road / rail driver is over 8 times more likely to be made bankruptcy than an educational professional, the risk weighting differential is only small. This differential could have a large monetary impact for a large institution (such as a big four bank), but would be a lot less significant for a smaller provider of credit. Though a smaller provider of credit to an industry that has a higher risk

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