ASIC on insolvencies in Australia: more than 200 tech firms went under in 2016

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ASIC on insolvencies in Australia: more than 200 tech firms went under in 2016

Cash flow is the biggest killer of ICT business, followed by bad strategy and trading losses, according to Australia's corporate regulator.

The Australian Securities & Investments Commission's annual report on corporate insolvencies revealed that 225 'information media and telecommunications' firms went under in 2016. The report covered 9465 external administrators reports in the 2016 financial year.

ICT failures were more prominent in 2016, with the industry ranked seventh on this year's list, up from 10th in 2015.

'Inadequate cash flow or high cash use' was blamed in half (112) of ICT failures, and 'poor strategic management of business' was a close second, blamed in 106 cases. 'Trading losses' was listed as the third biggest cause, with 'poor financial control, including lack of records' fourth most likely cause of failure.

Cash flow was also the predominant cause of failure across all business types (4,318 or 46 percent of reports), followed by poor strategic management of business (4,315 or 46 percent of reports), and poor financial control (3,183 or 34 percent of reports).

ICT firms were the most likely type of to have a small number of unsecured creditors, and more than half of debts to unsecured creditors were under $250,000. Of the 225 companies that went under, 72 owed between $500,000 and $5 million to unsecured creditors.

Still in the ICT sector, most unsecured creditors walked away with nothing – in 91 percent of cases, creditors got a return of zero cents in the dollar. Most of the rest got less than 11 cents in the dollar.

The vast majority of failed ICT companies burned the tax office when they collapsed – only 31 of 225 failed without a tax debt. Some 51 had tax debts of more than $250,000.

Small to medium size corporate insolvencies topped external administrator's reports. Some 97 percent of creditors in this group received between 0-11 cents in the dollar, reflecting the asset/liability profile of small to medium size corporate insolvencies.

Of the SMBs, 86 percent had assets of $100,000 or less, 79 percent had less than 20 employees, and 46 percent had liabilities of $250,000 or less.

This was ASIC's eighth report of the sort. More than 7700 reports were lodged alleging misconduct – representing 82 percent of all cases.

There was insufficient evidence of misconduct in 41 percent of cases, while between 17 and 19 percent of the cases were referred for investigation or surveillance.

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