Bankruptcies increase by 56% globally
New bankruptcy or insolvency transactions increased by 56% this quarter, according to data from Ansarada's latest Deal Indicators report.
By AnsaradaWed Sep 13 2023Debt raising / restructuring, Due diligence and dealmaking, Industry news and trends, Environmental Social and Governance, Bankruptcy and Insolvency
New bankruptcy or insolvency transactions increased by 56% this quarter (QoQ), and were up 114% over the full financial year (YoY), according to the latest Deal Indicators report. Of all the open bankruptcy/insolvency deals run through the Ansarada platform last quarter, 36% of them were in Healthcare, 29% were in Real Estate, 21% were in Consumer Staples, and 14% were in Tech.
The combination of an energy crisis, rising interest rates, and economic shocks are all contributing to a surge of bankruptcies, which we are already seeing play out in the market.
"The growth in insolvency and personal bankruptcy matter numbers highlights the ongoing reversion to pre-pandemic figures for the insolvency sector. The quantum of formal insolvency appointments, however remain historically low (noting the number of insolvencies immediately prior to the COVID-19 pandemic were comparatively weak) and the number of formal appointments resulting in a substantive sale of business or restructure requiring data room usage only makes up a small percentage of appointments. We expect the number of insolvencies to increase further as ongoing external issues such as inflationary pressure, declining consumer confidence, firmer attitudes from non-bank lenders and more active recovery action from the ATO continue to play out," said Nicholas Edwards, Head of Restructuring and Insolvency at Hamilton Locke.
The number of struggling businesses facing insolvency is increasing rapidly. The most recent Global Insolvency Index from Allianz shows that in 2023, it’s likely there will be a 21% increase, with an additional 4% increase in 2024. Almost half of the countries included in the Index are likely to surpass their pre-pandemic levels of insolvencies in 2023 – three out of five by 2024. In Europe, France, Germany, Italy and the UK are expected to experience significant increases in insolvencies. In the US, the number of insolvencies is projected to rise by 49% in 2023 due to tighter credit conditions and economic slowdown. Some of the hardest hit industries globally include construction, retail, and services.
In Australia, the number of business collapses has reached its highest level in over seven years, extending beyond the property construction sector to include retail, healthcare, childcare, and mining industries. Last June, business-to-business trade payment defaults soared to a record high of 1586, marking a significant 52 percent surge compared to the previous year, according to the CreditorWatch business risk index. The surge in insolvencies can be attributed to factors such as higher interest rates, reduced consumer spending, and some company directors surrendering their businesses after a brief pandemic-related relief. A new report on the nation’s insolvency regime has been tabled to review Australia’s insolvency laws and prioritize improvements to business restructuring pathways.
"After historically low levels of insolvencies in FY21 and FY22 (40% to 50% lower), largely due to COVID related government stimulus, the number of insolvencies has gradually increased in FY23 and is now back to similar levels as seen between FY17 to FY20. Whilst we expect some further increase in insolvency levels over the next year, given inflation has dropped quicker than expected, interest rates appear to have peaked, and the risk of recession looks to have dissipated, we do not expect those levels to be materially higher than the recent (pre-COVID) historical average," said Scott Butler, Partner at Hall & Wilcox.
Companies are being tested as they struggle with reduced profits, limited cash reserves, and tighter financial conditions. Building resilience through early contingency planning, including analysis of third-party suppliers and ESG performance, will help companies spot the warning signs and act early.
In a distressed economy, managing Environmental, Social, and Governance (ESG) risks becomes crucial. Disruptions from ESG issues like oil spills and supply chain disruptions not only harm reputations, but also have significant economic consequences.
ESG is increasingly recognized as a critical risk factor affecting profitability. Environmental and social events can lead to significant liabilities, making ESG a top priority for executives. Evaluating governance structures and implementing sustainable policies helps businesses mitigate ESG risks, but during economic downturns, businesses tend to prioritize short-term survival, neglecting critical ESG concerns. To thrive, companies must consider the long-term implications and strengthen supply chains and contingency plans. Embracing ESG principles will enhance resilience in the volatile economic climate.
The combination of an energy crisis, rising interest rates, and economic shocks are all contributing to a surge of bankruptcies, which we are already seeing play out in the market.
"The growth in insolvency and personal bankruptcy matter numbers highlights the ongoing reversion to pre-pandemic figures for the insolvency sector. The quantum of formal insolvency appointments, however remain historically low (noting the number of insolvencies immediately prior to the COVID-19 pandemic were comparatively weak) and the number of formal appointments resulting in a substantive sale of business or restructure requiring data room usage only makes up a small percentage of appointments. We expect the number of insolvencies to increase further as ongoing external issues such as inflationary pressure, declining consumer confidence, firmer attitudes from non-bank lenders and more active recovery action from the ATO continue to play out," said Nicholas Edwards, Head of Restructuring and Insolvency at Hamilton Locke.
The number of struggling businesses facing insolvency is increasing rapidly. The most recent Global Insolvency Index from Allianz shows that in 2023, it’s likely there will be a 21% increase, with an additional 4% increase in 2024. Almost half of the countries included in the Index are likely to surpass their pre-pandemic levels of insolvencies in 2023 – three out of five by 2024. In Europe, France, Germany, Italy and the UK are expected to experience significant increases in insolvencies. In the US, the number of insolvencies is projected to rise by 49% in 2023 due to tighter credit conditions and economic slowdown. Some of the hardest hit industries globally include construction, retail, and services.
In Australia, the number of business collapses has reached its highest level in over seven years, extending beyond the property construction sector to include retail, healthcare, childcare, and mining industries. Last June, business-to-business trade payment defaults soared to a record high of 1586, marking a significant 52 percent surge compared to the previous year, according to the CreditorWatch business risk index. The surge in insolvencies can be attributed to factors such as higher interest rates, reduced consumer spending, and some company directors surrendering their businesses after a brief pandemic-related relief. A new report on the nation’s insolvency regime has been tabled to review Australia’s insolvency laws and prioritize improvements to business restructuring pathways.
"After historically low levels of insolvencies in FY21 and FY22 (40% to 50% lower), largely due to COVID related government stimulus, the number of insolvencies has gradually increased in FY23 and is now back to similar levels as seen between FY17 to FY20. Whilst we expect some further increase in insolvency levels over the next year, given inflation has dropped quicker than expected, interest rates appear to have peaked, and the risk of recession looks to have dissipated, we do not expect those levels to be materially higher than the recent (pre-COVID) historical average," said Scott Butler, Partner at Hall & Wilcox.
Building resilience will be key in a distressed economy
Companies are being tested as they struggle with reduced profits, limited cash reserves, and tighter financial conditions. Building resilience through early contingency planning, including analysis of third-party suppliers and ESG performance, will help companies spot the warning signs and act early.
In a distressed economy, managing Environmental, Social, and Governance (ESG) risks becomes crucial. Disruptions from ESG issues like oil spills and supply chain disruptions not only harm reputations, but also have significant economic consequences.
ESG is increasingly recognized as a critical risk factor affecting profitability. Environmental and social events can lead to significant liabilities, making ESG a top priority for executives. Evaluating governance structures and implementing sustainable policies helps businesses mitigate ESG risks, but during economic downturns, businesses tend to prioritize short-term survival, neglecting critical ESG concerns. To thrive, companies must consider the long-term implications and strengthen supply chains and contingency plans. Embracing ESG principles will enhance resilience in the volatile economic climate.
Decode market trends for the year ahead
Download the latest Deal Indicators report, then join our panel of experts on Wednesday 20th September at 12pm to dive into the forward-facing market indicators and discuss what is driving deal activity in FY24 and beyond.
