Bond University’s Professor of Economics and Statistics, Kuldeep Kumar, today warned the Australian business and finance sector that the current financial crisis will most likely trigger the onset of a recession, and as a result, bankruptcy will rise sharply in the last quarter of this financial year.
“Usually, a seasonal pattern sees a significant rise in bankruptcy rates during the second quarter of each financial year,” said Professor Kumar.
“This is largely due to individuals and small businesses wanting to avoid tax and opting to declare themselves bankrupt just before the end of the financial year,” he continued.
Professor Kumar predicts that total bankruptcies in Australia will increase by 7,900 in the second quarter of 2009 which will most likely include 6,700 personal bankruptcies and more than 1,150 business related bankruptcies.
“This is an alarming spike in bankruptcy rates,” said Professor Kumar.
“The current conditions brought about by the global financial crisis now mean that regulatory bodies like APRA (Australian Prudential Regulation Authority) and ITSA (Insolvency and Trustee Services Australia) need to be even more alert and ready to make early identifications of failing businesses.
“Early identification can assist regulatory bodies in ensuring that business failure is ‘handled’ legally and any illegal activities resulting from these pressured conditions, such as avoiding taxes or diluting debt holders’ claims using substantial common stock dividends prior to failure, are conscientiously avoided.
“Personal bankruptcy must also be closely monitored by Australian Taxation Office,” Professor Kumar continued.
“Unemployment is predicted to rise in response to the alarming number of business bankruptcies predicted for next quarter.
“It is a bit too difficult to forecast how long the current financial crisis will last, or if Australia technically goes into recession, how long that recession will continue for. However, after every recession the market bounces back with even more vigour and for this we look forward,” concluded Professor Kumar.