Adverse economic conditions the main reason for
business bankruptcy

The primary cause of business-related bankruptcy is stated to be economic conditions affecting the industry, such as competition, credit restrictions, drops in prices or increases in costs, according to the latest statistics released by the Insolvency and Trustee Service Australia (ITSA).

In 2011, adverse economic conditions accounted for 42 per cent of total business-related bankruptcies, which refer to a debtor's insolvency being directly related to the debtor's proprietary interest in a business. This was down six per cent over the past two years, and down by eight per cent over the past nine years.

According to ITSA, there was an unprecedented proportion of bankruptcies that nominated economic conditions affecting industry as the primary cause of business-related bankruptcy in 2009 (49 per cent). This declined in 2011 but still remains high compared to previous years.

In comparison, five per cent of bankrupt debtors stated a 'lack of business ability' as a key reason, which included underquoting customers and a failure to assess the potential of the business; this was down from seven per cent in 2009 and down from 13 per cent in 2003.

Four per cent cited excessive financial drawings including a failure to provide for taxation, down by three per cent over the past two years and down by five per cent over the past nine.

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