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Personal insolvencies increased by almost a third in January compared with the same period last year, according to the latest AFSA data.
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Personal insolvencies continue to soar in early 2024
06 March 2024
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10 minute read
The total number of personal insolvencies climbed to 1,015 for January, rising from 805 in December.
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This was also a 31 per cent increased from the total number of personal insolvencies recorded in January 2023.
Of the new personal insolvencies, 553 were bankruptcies, 452 were debt agreements and ten were personal insolvencies.
Workers entering personal insolvency most commonly worked in the construction, healthcare and retail industries, according to the data.
The figures for January follow increased numbers of personal insolvencies for the December quarter last year.
There were 2,608 new personal insolvencies in the three-month period to December 2023, up from 2,321 in December 2022.
National data shows personal insolvencies rose in all states and territories, except for Western Australia and the Northern Territory where numbers declined.
Of the December quarter 2023 personal insolvencies, just over a quarter (713) were business-related.
Insolvency and business turnaround specialist Jirsch Sutherland said business-related personal insolvencies are rising as personal guarantees catch up to directors of previously wound-up businesses.
Personal insolvency numbers are still not at pre-COVID levels but are likely to continue trending up, the firm warned.
In the latest January 2024 update, 222 people who entered into a formal personal insolvency were also involved in a business.
Jirsch Sutherland partner Malcolm Howell said there is generally a lag of six to 18 months from the time a corporate insolvency occurs to when a business-related personal insolvency happens.
“We’re now hitting that post-COVID lag timeframe, as creditors ‘call in their markers’ – that is, personal guarantees,” said Howard.
“Directors are often required to sign personal guarantees, which renders them personally liable for any debts that the company cannot pay. We’re now seeing greater pressure being applied by second-tier financial institutions, while the ATO continues to issue a lot of Director Penalty Notices. The result will be even higher levels of bankruptcies.”
Howell said the latest figures also indicate an increase in the number of Personal Insolvency Agreements (also known as Part X Agreements), which are an alternative to bankruptcy.
During the December quarter these agreements rose by 32.1 per cent.
“The numbers are still low but I anticipate more individuals will take advantage of these agreements. The main benefit is that creditors are unable to initiate further action to recover their debts, and this can prevent you from being forced into bankruptcy,” he said.
He also stressed the importance of directors understanding their obligations under a personal guarantee – especially how long those obligations apply.
“Many directors are shocked to discover they are liable for a company’s debts owed under an agreement, even if it’s years after the original agreement was signed, the company has been wound up, or they haven’t been involved with the company for a very long time,” he said.
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