2 May 2006
Companies that have had legal action taken against them are nearly eight times more likely to fail than those that haven't, providing an important early indicator of increased risk for creditors, according to business information analysts Dun & Bradstreet (D&B).
The figures are the latest in D&B's Corporate Health Watch series which provides analysis on possible early warning signs of corporate failure. The data is particularly important for creditors dealing with private companies where information is typically more difficult to acquire.
D&B figures also show that an increase in the median value of court actions is impacting on the number of companies going into external administration. The median value of court actions has increased between 2003 and 2005 - $3,300 to $4,000 respectively - and there has been a corresponding rise in the number of companies entering external administration - from 6,600 in 2003 to 7,300 in 2005. The Services and Agriculture industries recorded the greatest increase in median value.
While there is no clear reason for the median value increase, it does point to the greater pressure placed on cash flow management and the increased risk of company failure.
D&B Australasia CEO, Christine Christian, believes the latest data demonstrates that access to timely and accurate information is critical to limiting the damage of corporate failures to creditors and other related parties.
"The D&B Corporate Health Watch demonstrates that while profit is one clear indicator of the health and associated risks of a company, there are other early warning indicators of increased risk", said Ms Christian.
"Unlike publication of a company's annual accounts, corporate legal action can occur at anytime throughout the year and the information is quickly available. Access to this analysis can be critical when determining whether to do business with, or become a supplier to, another company.
"Credit risk is a constant issue and a key way that companies can manage risk is by acquiring an accurate insight into their customers' financial health, debt paying behaviour and any actions that increase risk such as legal disputes.
"Companies must become smarter as they continue to face uncertain economic times. A simple credit check could help save businesses, big and small, from failure that could have been avoided."
For further information, please contact:
Hill and Knowlton
(02) 9286 1225
(03) 9828 3333
D&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 130 million companies.
Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than one million times daily as part of D&B's commitment to provide accurate, comprehensive information for its more than 150,000 customers.
The Australasian operations were bought out by the senior management group in August 2001. It was the first MBO of a wholly owned subsidiary in D&B's history worldwide.
Today Lazard Carnegie Wylie owns an approximate 90% stake in DBA and the local management team a 10% stake.
Strategies for future growth include developing DBA's commercial and consumer credit referencing business; expanding its receivables management outsourcing business; maintaining its lead in the development of unique credit and risk scoring products; and developing new products specifically tailored to the Australasian market. DBA currently employs over 500 people in Australia and New Zealand.