SYDNEY, 25 August 2023: New research released today by credit bureau, illion, has confirmed a strong relationship between the personal credit behaviour and business history of a company’s directors and the likelihood of that business failing.

illion has found a significant hidden risk facing Australian consumers and businesses who do business with potentially insolvent or nearly insolvent businesses. Something of national importance during uncertain economic times.

In an economic period where the risk of business insolvency is high and would lead to losses by consumers or other business customers, illion’s findings highlight the importance of assessing a director’s financial health and credit standing alongside that of the business they run or are part of. Something that currently is not on the radar of many Australians.

Through its proprietary business information and consumer credit bureau data illion has found that directors who ran a business that previously failed are 60 percent more likely to now operate a business with a high risk of failure in 2023. This suggests that a director with past business failures has a strong influence on the viability of a business that they currently control. An important consideration for anyone choosing to be a supplier or a customer with that business in 2023.

The research found that directors with a high risk of consumer credit default are almost twice as likely to be connected to a business that failed – and close to three times as likely to be connected to multiple business failures when compared to directors with an unblemished credit history. This strong relationship between consumer and commercial risk suggests that consumer credit information is an effective indicator of commercial risk, especially when limited relevant commercial behaviour is available.

When it comes to specific industries, the research found that directors of ‘food services’ businesses, including cafes, delis, restaurants, and take-away outlets are the most likely group to hold personal credit at high risk of default. For example, overdue consumer credit cards, personal loans, or home loans.

Around nine percent of ‘food services’ businesses are currently controlled by directors who have a high risk of defaulting on their personal credit. This is substantially higher than the director risk observed in all other commercial sectors – including other high-risk industries, such as ‘construction’ which is below six percent, ‘retail’ at around five percent, ‘transport’ at six percent, and low-risk industries such as ‘manufacturing & wholesale’ below four percent, ‘financial services’ at four percent, and ‘professional services’ at five percent.

Commenting on the behaviour of high-risk directors, Tony Meredith, General Manager of Commercial Risk at illion said: “To keep the business afloat, high-risk directors may opt to use any surplus cash flow and capital for that business and risk defaulting on their personal credit. As such, the true risk of the business may be initially uncovered from their overdue personal credit when say, mortgage repayments are missed, credit cards limits are ‘maxed out’ and consumer loans are taken out to prop up the business if business credit dries-up.”

“Commercial lenders, suppliers, and creditors to SME businesses, and consumer lenders to the self-employed should consider both the commercial behaviour of the business and the consumer behaviour of its directors to get a clear understanding of the risks in interacting with a business in these uncertain times.”

The research also showed that the percentage of young businesses (trading for less than three years) that are controlled by high-risk directors is substantially higher than the percentage of mature businesses. For example, around 18 percent of ‘transport’ businesses, 15 percent of ‘food services’ businesses and 14 percent of ‘construction’ businesses are controlled by a high-risk director.

“Young businesses may be controlled by directors with less personal wealth, where personal borrowings may need to be used to fund business activities, where directors are less able to draw on the business’s profits to fund both their personal lifestyle and to reinvest in the business, and where their inexperience alone places the business at a higher risk, added Tony Meredith.

“Similarly, the inexperienced director may have a propensity to use available credit for funding their personal lifestyle when cash flows from their business activities are tight.”

“Our research suggests that this director risk initially shows up in the business’s operational activities on some occasions and in the director’s personal profile on other occasions. When it is the latter, the director’s personal risk offers vital insight into the risk of the business.”

“This strongly suggests that financial risk is pervasive, affecting both the business’s viability and the individual’s personal credit standing. While the business’s viability will impact on the personal well-being of its directors, we have also seen that the opposite is also true: that struggling businesses can be controlled by directors that struggle to manage their personal finances,” he added.

“Suppliers and creditors would benefit from knowing a director’s personal credit behaviour when limited information is available on a business. In addition, where the consumer behaviour pre-dates a business’s problems, visibility to this consumer behaviour would become essential if needing to manage exposure to this risk. This is especially important in the SME sector, where the business’s performance is generally just a veneer to the director’s underlying risk.”

illion’s research found that personal credit behaviour that was associated with directors of a business that eventually failed included:

  • Directors who were previously declared bankrupt.
  • Directors with recent court judgements on failed credit contracts.
  • Directors who had a high number of credit applications, with the volume of applications increasing over time.
  • Directors with credit defaults.
  • Directors with consumer credit accounts at 60 days or more past due, including their residential mortgage.

“Each listed attribute would have ‘raised a concern’ about the financial standing of the director. However, where a director had several of these adverse attributes then significant caution should have been exercised,” Mr Meredith concluded.


About the data

illion holds business information on over 8 million commercial entities and over 2 million active entities. Adverse business history, structural, geographic, demographic and director data is sourced from court registrations and ASIC. Trading behaviour, including invoicing and payment data is sourced from illion’s proprietary trade program, which holds the trading obligations of Australian businesses. The program’s data-store holds the volume and value of invoices received over more than 20 years and the business’ performance in meeting these obligations.


“This Commercial Insights Report (“Report”) is provided by illion Australia Pty Limited (“illion”)as general information, and it is not (and does not contain any form of) professional, legal or financial advice.

illion makes no representations, warranties or guarantees that this Report is error-free, accurate or complete.

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