Personal insolvencies in Australia up 25% in January

Personal insolvencies in Australia increased 24.5% in January 2023, according to new monthly statistics released recently by the Australian Financial Security Authority (AFSA). 

During January, there were 772 new formal personal insolvencies – rising from 612 in December.

Of the new personal insolvencies, 414 were bankruptcies, 344 were debt agreements, and 14 were personal insolvency agreements. There were no insolvent deceased estates.

Where we could identify the industry an individual worked in, the most common industries were:

• Health care and social assistance
• Transport, postal and warehousing
• Retail trade

In January 2023, there were 18 new temporary debt^[?] protections.

Throughout the period, 142 people who declared bankruptcy were also involved in a business – down from 148 in December.

Meanwhile, personal insolvencies fell in Australia, with a total of 2,321 new insolvencies recorded in the December quarter 2022 – down 3.6% from the December quarter 2021.

New figures from the Australian Financial Security Authority (AFSA) revealed that insolvency numbers fell in every state and territory compared to the same period last year – except Victoria, Northern Territory and the Australian Capital Territory which recorded an increase of 4.7%, 38.9% and 12.0% respectively.

Of the new insolvencies in the December quarter 2022, 57.9% were bankruptcies and 40.4% were debt agreements. The remainder were personal insolvency agreements and deceased estates.

In addition to decreased year-on-year insolvencies, AFSA statistics are also showing a gradual drop in insolvencies in recent months – with a 3.7% decrease in new insolvencies compared to the September quarter 2022.

In the December quarter 2022, 36.8% of bankruptcies were business related, a rise from 35.7% in the September quarter 2022.

While recent numbers are dropping, forecasting shows that personal insolvencies are expected to gradually return to pre-COVID levels within the next two years.

Debt agreement

A legally-binding agreement under Part IX of the Bankruptcy Act 1966 between a person who cannot pay his or her debts and his or her creditors. A debt agreement is made when creditors agree to accept the proposed terms and conditions of the debt agreement to settle the debts.

Personal Insolvency Agreements

Personal Insolvency Agreements (PIAs) are a form of debt relief available to individuals who are insolvent and unable to pay their debts as they fall due. PIAs are governed by the Bankruptcy Act 1966 (Cth) and are administered by the Australian Financial Security Authority (AFSA).

A PIA is a legally binding agreement between the debtor and their creditors, in which the debtor agrees to pay a portion of their debts over a period of time. The terms of the agreement are negotiated between the debtor and their creditors, with the assistance of a registered trustee.

Temporary Debt

In Australian insolvency law, the concept of “temporary debt” refers to a debt that is incurred by a company while it is in the process of being restructured or sold under a deed of company arrangement (DOCA). A DOCA is a legally binding agreement between a company and its creditors that is designed to provide a company with breathing space while a plan is developed to restructure or sell the business.

Temporary debts are debts that are incurred by a company during the DOCA process that are essential to the ongoing operations of the business, such as wages, rent, and utilities. These debts are given priority over other unsecured debts in the event that the company is liquidated, which means that they must be paid off before other unsecured debts are paid.

The purpose of giving temporary debts priority in the liquidation process is to ensure that essential creditors are paid first, and to provide an incentive for companies to enter into a DOCA and continue operating while they are being restructured or sold.

It is important to note that not all debts incurred during the DOCA process will be considered temporary debts. To be considered a temporary debt, the debt must be essential to the ongoing operations of the business, and it must be incurred in the ordinary course of business. If a debt is not considered a temporary debt, it will be treated as an unsecured debt and will be paid off in the order of priority set out in the Corporations Act 2001 (Cth).

Also see: Commercial chapter 11 US bankruptcy filings up 83% in February