Insolvencies look to be on the rise in the local IT industry, with the market segment contributing to 225 external administrators’ reports during the financial year ending June 2016, according to new data by the corporate regulator.
The Australian Securities and Investments Commission (ASIC) revealed Australia’s latest insolvency and administration figures in its Insolvency Statistics: External Administrators’ reports (July 2015 to June 2016), released on 14 December.
The report is aimed at presenting an overview of total lodgements of statutory reports lodged by liquidators, receivers, and voluntary administrators.
Of 9,465 initial external administrators’ reports lodged during the year, the information media, and telecommunications industry segment made up 2.4 per cent of the total tally.
The tech segment was ranked seventh on the list of the top administration report generators, below construction, accommodation and food services, retail trade, transport and warehousing, and manufacturing.
The report highlighted the increasing contribution the information media and telecommunications segment is playing in Aussie administration reports, moving up in the rankings from 10th for the year ending 2015.
In the previous year’s report, the information and telecommunications segment accounted for 182 initial external administrators’ reports, equating to 2.2 per cent of the annual total.
According to the report, the top three causes of failure nominated by external administrators is inadequate cash flow or high cash use, poor strategic management of business, and poor financial control, including lack of records.
Of 574 reported failures in the information media and telecommunications segment for the year, the top causes of failure were inadequate cash flow, which was nominated as the reason behind 112 business failures, and poor strategic management, which claimed 106 failures.
Meanwhile, under-capitalisation was the reason given for 49 failures in the sector during the period, trading losses claimed 82 failures, poor financial control was the cause behind 59 failures, and poor management of accounts receivable claimed 36 failures.
Additionally, fraud accounted for four failures during the year in the information media and telecommunications segment, and dispute among directors resulted in 15 failures.
Among the 225 initial external administrators’ reports claimed by the information media, and telecommunications segment, 88 had less than $1 in assets, 38 had up to $10,000 in assets, and 26 claimed assets of between $10,000 and $20,000, and 17 had up to $5 million in assets.
At the same time, 124 failed businesses in the sector claimed up to $250,000 in liabilities, and seven had up to $10 million in liabilities.
The ASIC report comes as Brisbane-based security technology reseller, Kudos Australasia, goes into administration with almost $2 million owing to creditors.
Meanwhile, in early December, the Federal Court of Australia ordered technology company and self-proclaimed Google challenger, Uglii Group, to be wound up after it, and its associated entities were found to be insolvent.
According to Atradius A/NZ managing director, Mark Hoppe, the local tech sector is particularly susceptible to certain financial woes, with a recent survey by the trade credit insurance company finding that business-to-business customers in the IT market segment take longer to pay overdue receivables than in other sectors.
"Around 55 per cent of the total value of B2B invoices issued by suppliers in Australia to B2B customers in the ICT industry were paid late," Hoppe said.