Bankruptcy regulator warns vulnerable Australians are getting caught up in rising insolvency figures

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The country’s bankruptcy regulator has warned of the rising number of personal insolvencies affecting vulnerable Australians, as small business owners struggle to make ends meet due to mounting debts.

Australian Financial Security Authority chief Tim Beresford said personal insolvency was “rising,” with rates increasing from about 10,000 last year, to 12,500 this year, and 15,000 next year.

“The 10-year (annual) average is 23,000,” he told small business leaders at the Council of Small Business Organisations Australia national small business summit on Thursday.

Mr Beresford said most Australians facing insolvency were “extremely vulnerable,” with less than $50,000 in liabilities.

“One credit card, one personal loan, five buy now pay laters, and five bills, that’s it,” he said.

“Often those people (are) sole traders … often those people suffer vulnerabilities beyond financial fundamentals.”

December quarter personal insolvency figures from AFSA revealed there had been a 23.4 per cent increase in insolvencies for the same period year-on-year, from 612 in December 2022, to 2608 in December last year.

Business-related personal insolvencies made up the bulk of insolvencies (27.3 per cent).

Mr Beresford said AFSA was concentrated on educating businesses about tactics involving early intervention with financial counsellors, chartered accountants, or conversations with creditors and banks.

He also flagged a “sharpening” of compliance measures to ensure businesses guilty of “unlawful behaviour” faced “decisive action”.

Earlier on the panel, the Australian Taxation Office taxation commissioner Rob Heferen said the ATO was chasing more than $50bn in outstanding debt, with about 65 per cent ($32.5bn) from small businesses.

The debts, which include money from customer GST payments, and employee PAYG tax, meant businesses could inflate their financial statements, however it threatened a company’s long-term viability.

“We are seeing an increasing number of businesses fall behind on these types of payments, from which point it is very difficult for businesses to get back on top of their obligations and remain viable,” he said.

“It’s critical that all employers – big and small – keep on top of their obligations to their employees first and foremost, as well as their obligations to government in respect to GST, income tax and other taxes.”

Mr Heferen’s warning comes after the ATO warned of a crack down last year, after the tax authority loosened rules during the Covid-19 pandemic.