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Corporate remnants of the global financial crisis are back. According to new research by Vera Advantage Bureau, “phoenix companies” are on the rise.
These companies have come back in the guise of new entities and are hiding their bad credit history by starting over on a clean slate. According to the report, the news has spooked many business owners, who are now engaging in credit checks to minimise business risks with new credit partners.
Phoenix companies often choose the option of closing shop rather than facing creditors, necessitated by judgments, defaults, bankruptcies, writs and court summons against directors.
The statistics behind these findings show that one in every ten directors is linked to a company with adverse credit history in the six months before starting the new company.
New business registrations at highest in decade. But is this a good sign?
The report also found that the number of new business registrations in Australia is at its highest in over a decade. In comparison to the first quarter of last year, the first quarter of 2010 has seen new business registration up by 23%.
Chances are that if a company enters into external administration it is twice as likely to start a new company within six months
The problem is compounded by the fact that these directors could also be involved in eight or nine other companies. The findings of the research have shown that directors linked to adverse credit history are seven times more likely to default in future than those with a clean credit history.
The report warns that performing a credit check on your customers and suppliers could mean the difference between survival and collapse, and afford businesses the benefit of avoiding exposing themselves to credit risks and liquidity problems in the future.
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