Comment on use of bankruptcy as commercial option

The use of bankruptcy as a commercial option is a major concern for governments, according to Deputy Premier Ian Taylor.

Mr Taylor, the Minister responsible for small business, was commenting on an article on business bankruptcies in the 'Small Business in WA' report.

"I am well aware that economic conditions are currently tough.  However, the use of bankruptcy is only a partial cure to a personal problem and certainly not a prevention we all desire," Mr Taylor said.

"The Small Business Development Corporation report reflects on some of the more recent trends of people using bankruptcy as an easy way out and also highlights the discrepancies."

Mr Taylor, quoting from the report, said business bankruptcy applied to any individual declaring him/herself bankrupt while having control either partially or totally of a business operation for anything up to five years preceding that declaration.

Bankruptcy statistics had been given a great deal of attention but there were a number of limitations to this indicator of business failure including: -

·         one source estimated it accounted for only 15 per cent to 20 per cent of all business failures and did not include company failures such as closure by liquidation or receivership;

·         a business bankruptcy was so categorised if the individual concerned indicates any business involvement in the five years preceding declaration of bankruptcy, even though the cause of bankruptcy may bear no relation to that involvement;

·         business bankruptcies related to individuals only and several bankruptcies might result from a single business failure, thereby inflating the figure relating to actual business ventures;

·         due to time lags with processing business bankruptcies, statistics for a year might relate to business failures that occurred up to three years previously.

Mr Taylor said findings from the report indicated that in WA business bankruptcies were more prevalent in the retail and wholesale sector and among sole proprietors as opposed to partnerships.

"Two thirds of business bankruptcies in WA over 1990-91 were declared by people in the 25-45 age group.

"For the younger business bankrupts aged 25 to 35 years, the main reason for business failure was attributed to lack of business acumen," he said.

A recent study by Dr Joan Carr of Flinders University found that the typical business bankrupt was a sole trader with a relatively new business in the retailing or transport sectors.

Furthermore, the bankrupt was male, married, aged between 35-44 years, was born overseas in an English speaking country and currently rented accommodation having most likely shifted home in the past twelve months.

Mr Taylor said according to the Inspector General's Annual Report the main reasons for business bankruptcy in WA were: -

·         lack of business ability and economic conditions - 60.8 per cent;

·         lack of sufficient initial working capital - 13.6 per cent.

"Statistics and commonsense reveal that bankruptcy has a high frequency among business with low skills and low standards of education," he said.

"It is logical, therefore, that a number of preventative measures can be taken to avoid bankruptcy.

"Adequate training in business skills has been proven to increase the chances of business success and activities such as seminars and workshops offered by the SBDC, TAFE and private sector providers should be undertaken where possible."

Copies of the 'Small Business In WA' report are available by subscription from the SBDC or can be purchased individually from the First Base centre.