The effect of the environmental movement on Insolvencies in Australia

08/12/2014 by Michael Jones

There are three major contributors to Australian insolvency statistics

Obviously the overall health of the Australian Economy is important and this was clearly demonstrated in the Jones Partners Report on Insolvencies in the Australian Economy launched in July 2014. In that report it was clearly demonstrated that there is an inverse relationship between the level of GDP and the number of Insolvencies. This was more pronounced with respect to Company Liquidations, Voluntary Administrations and Receiverships than with Personal Bankruptcies.

It’s important however to realise that the management of individual businesses is more important. In fact the major reason for Australian company failures as articulated in a report by the ASIC is lack of strategic management. In fact of the top 4 reasons for Australian companies going into Liquidation, Administration or Receivership – the state of the economy does not even appear.

The third major contributor to the level of insolvencies in Australia relates to structural changes within the Australian economy itself

Advancing technology is a good example of these structural changes and wherever structural changes do occur there will be winners and losers. Think of what happened to the businesses that made buggy whips when the horse and cart was replaced by the automobile.

At present one of the major structural changes happening within the Australian economy and indeed the World is the impact of the environmental movement. The attached video excerpt on the effect of the environmental movement on insolvencies in Australia provides an interesting narrative on this topic.

Specifically there is some uncertainty about the future of energy. There is robust debate about climate change and in Australia previous governments with a more leftist leaning have been more inclined to provide subsidies for Australian industries developing alternative forms of energy. At present policy seems to have shifted away from subsidising any form of inefficient industry. A good example of this is the impending closure of the car industry. Those industries such as solar and wind generation that have relied heavily on government subsidies are also clearly at risk.

Not with standing foregoing and whether or not Australia has a Carbon Tax or some form of Emissions Trading Scheme it is clear that in the medium to longer term energy prices will continue to rise. Accordingly Australian companies that are high energy users must seek efficiencies or they too will be at risk. It is therefore likely that company insolvencies in Australia including Liquidations, Administrations and Receiverships will have a much greater representation statistically from industries that are not able to adapt to this changing energy environment.

Irrespective of government policies Australia and the World are becoming far more respectful of the environment .It is also evident that things like energy efficiency is much greater driver for business changes than any form of government policy. This is an example of how free market forces can and will have a positive effect on the environment.

One example of this relates to light globe technology. New LED lighting provides light globes that last for several thousand hours as opposed to the old incandescent technology which last less than 100 hours. In addition the energy usage of the new technology is a fraction of the old .Clearly any company retailing or wholesaling old technology will find it difficult to survive and Australian businesses that don’t move relatively quickly to reduce their energy usage by adopting this kind of technology will be at a major disadvantage.

Australian companies not able to address these structural changes are at risk of closing altogether. Whilst it is difficult to implement a turnaround program using Voluntary Administration or any other procedures for that matter if the underlying business model is not addressed , if the underlying business model is sound then turnaround is a viable option notwithstanding the level of debt or the extent or previous losses.

Jones Partners is expert at investigating these issues and providing professional advice and practical solutions. We can advise on a range of solutions that assists companies in difficulty Including Voluntary Administration, Receivership and various forms of Liquidation. In relation to personal insolvencies Jones partners has 4 registered Bankruptcy Trustees who are extremely active in assisting individuals resolve their personal financial difficulties using various parts of the Bankruptcy Act including Part 10 (Personal Insolvency Agreements) and Annulments pursuant to section 73 Of the Bankruptcy Act.