by Allan Ly

Following Hon. James Peck’s key-note address as to the “Lessons from Lehman Brothers Collapse” at the ARITA Conference, my mind turned to the question of what may be lurking beyond, being economic uncertainty.

When the GFC befell us, I was still in my younger years in amongst the uproar when the fourth-largest investment bank in the U.S. collapsed with $600bn in assets and $1.2trillion in creditor liabilities, a number which a majority of us cannot fathom.

While assured that financial system risk was not to be an area of concern in light of the Banking Royal Commission and reactive action taken by public policy, there was a suggestion (or concern) by Hon. Peck that the divergence from a globalised economy to individual economies would be an area of risk due to the self-interest of government. In addition to this was the notion of “shadow banks”. Shadow banks refer to non-banking financial institutions facilitating the creation of credit but not subject to regulatory oversight, who as of late, gained a pricing advantage over the mainstream financial institutions.

My concern more so lies in the recent growth and development of the start-up space in. In particular, what is noteworthy is that $1.5bn was raised by venture capital funds for start-ups, that there are currently 25 accelerators and tech incubators and universities are launching programs to expand or build on new industries.

Whether it be a non-customer centric product, focus, funding, the following has been reported by ASIC as the top 3 indicators of insolvency for businesses generally:

  • Non-payment of taxes (3,002 reports, or 76.8%).
  • Difficulties paying debts when they fell due (letters of demand, recovery proceedings, increasing ageing of accounts payable (1,942 reports, or 49.7%).
  • A serious shortage of working capital or unprofitable trading (1,843 reports, or 47.1%).

Just recently, Veritas Advisory oversaw the Administration and Deed of Company Arrangement of Loanflare, a start-up company which had developed an online software platform for the mortgage broking industry however ran into a few issues along the way with unpaid creditors and an aggrieved investor.

In the past year, customer experience data start-up Fullcrum Limited fell into receivership. As did Unlockd, a tech start-up, car manufacturing start-up Tomcar Australia, solar start-up Matter Technology as well as Foodora! Statistics indicate that over 60% of startups fail in the first three years.

In the peripheral, there are a myriad of issues that are also causes for concern.

  • Haemorrhaging that has rippled through the ASX following interest rate increases by the U.S. Federal Reserve which has led to losses in the global market.
  • Wages grew on average 0.6% by the March 2018 quarter in light of the Wage Price Index.
  • The average mortgage size in Sydney in April 2018 was 7% higher than it was one year ago, giving rise to an affordability issue.
  • Sydney property prices in August 2018 fell by an approximate 5.6% over the past year.

While the above may appear to be doom and gloom, engaging the right advisors and allowing for better planning needs to be considered to ensure your financial security where possible.

Should you have any questions regarding the above or should you or your clients require advice in respect of the financial capabilities of their company, please do not hesitate to contact David, Steve, Vincent or Louise who are more than willing to assist.

 

Reference where required

Start-up fails:

Property & wage stats:

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