Agriculture, retail on insolvency books

WESTERN Australia’s insolvency sector has some bad news for struggling areas of the state’s economy – expect more of the same next year.

In an annual wrap-up compiled by WA Business News, key players in insolvency said pressure would remain on the rural, mining services and retail sectors in 2011.

And in a warning for the rest of the business community, insolvency practitioners also said the Australian Tax Office was moving to more aggressively pursue unpaid taxes.

More than 500 companies entered external administration to November 1 this year, with a further 780 formal appointments, according to the Australian Securities and Investment Commission.

This is slightly more than the same period last year but up markedly on 2008, when only 323 administrations and 522 formal appointments took place.

Insolvency practitioners are busiest during the bad times and the dual-speed economy is making for plenty of work, with firms reporting a busy year and plans to take on more staff.

Ernst & Young continues to rebuild its practice after partners Brian McMaster and Oran Zohar left to establish the Perth branch of KordaMentha in 2003; it plans to add six staff.

Deloitte, HLB, Mann Judd and KordaMentha also reported growth in staff numbers, with a continued focus on recruitment into 2011.

Taylor Woodings has also increased in size, moving from 15 to 20 insolvency staff during the year.

Clive Peeters, SAS Global, and Griffin Coal were among some of the biggest collapses of the year, but 2010 is destined to go down as an annus horribilis for the agribusiness sector, which has experienced the collapse of five timber-related managed investment schemes, two from WA.

Rewards Group was placed in receivership in May, with associate ARK Fund following soon after in June.

McGrathNicol is handling the receivership for both companies, as well as the ongoing fallout from original timber giant Great Southern, which collapsed in 2009 with about $3 billion in accumulated debt.

McGrathNicol partner James Thackray told WA Business News the MIS sector had been keeping his firm busy in 2010.

“That sector’s under considerable pressure still, most of the major MIS companies have now folded,” Mr Thackray said.

Ferrier Hodgson partner Andrew Saker said conditions across rural WA remained tough as agribusinesses were hit by the ongoing drought and the strong Australian dollar.

Ferrier Hodgson is handling the administration of Great Southern and estimated that Great Southern growers are still owed around $2.2 billion.

RSM Bird Cameron partner Mark Conlan said there were a lot of ‘issues’ with companies that operated outside the farm gate, servicing the farming sector as either suppliers or downstream processors.

The firm was recently appointed as administrator to Farmpower, a machinery dealership based in the Wheatbelt.

Mining services was another sector reported to be under pressure, with contractors Marine & Civil and AE&E both calling in the administrators in 2010 as competition from offshore and cost blow-outs took a toll.

Ernst & Young Oceania restructuring leader Vince Smith said many banks had initiated the informal restructuring of some mining services companies this year.

“There’s an expectation that it’s an easy area to make profit and I think that’s proving not to be the case,” he said.

Mr Thackray said profits from the major resources projects had yet to trickle down to the services industry.

HLB Mann Judd principal Kim Wallman said that, with consumers remaining cautious, activity had mainly been in informal restructuring in the retail sector.

“We’ve found that retail has been struggling, anything that’s to do with discretionary spending has been an issue. In the last six to eight months our inquiry rate has been very high,” Mr Wallman said.

Mr Conlan agreed, saying the lull in consumer demand was causing pain for many retailers.

“There is a double whammy because banks are being a lot more prudent with their lending,” he said.