Boom time for busts

Corporate insolvencies to spike amid crippling debts

Australia’s corporate insolvencies are set to reach the highest level since the global financial crisis as a tsunami of struggling businesses fail amid crippling debt levels.

Revive Financial head of business restructuring Jarvis Archer said broken businesses were queuing up to be wound up as the predicted insolvency “clean up” year gets under way, driven by aggressive debt chasing by the Australian Taxation Office.

The number of companies entering insolvency peaked at 10,757 in 2012 as the country struggled to emerge from the global financial crisis.

High interest rates, rising costs and limp consumer spending mean that figure it set to be topped by the end of the current financial year.

“With insolvencies forecast to increase, it appears they will exceed GFC levels in the coming year,” said Mr Jarvis. “A prolonged period of reduced consumer and business spending has left bank accounts dry and loaded balance sheets with high interest loans.”

Insolvencies this year are already tracking 36 per cent higher than pre-Covid levels as hard hit sectors including construction and hospitality take a hit.

Sydney pub king Fraser Short put his flagship hospitality company The Sydney Collective into administration just before Christmas owing $5.5m, while national building firm St Hilliers Contracting owes creditors more than $40m after appointing administrators in February.

“The UK, which we usually follow, is experiencing its highest levels of insolvency in 30 years,” said Mr Archer. He said the ATO had become increasingly aggressive in its approach to companies with tax debts.

“The options are now black and white: pay, close or restructure your debt,” he said. The ATO’s recent announcement that it would report 100,000 to 150,000 businesses to credit reporting bureaus before June 30 “shouldn’t be ignored,” he said.

“It will cause those businesses to lose trade credit, and possibly have finance pulled, impacting their staff,” Mr Archer said. “As a business needs to have over $100,000 in debt to be reported I can only guess this covers $20bn to $25bn in ATO debt.”

ASIC data shows insolvencies from July 1 to February 18 totalled 8170, compared to 6271 a year ago. Construction insolvencies so far this financial year were 2181, up from 1615 a year ago; retail insolvencies increased to 520 from 390; while accommodation and food services rose to 1144 from 715. Mr Archer said going by current trends total insolvencies would reach a record 10,782 by the end of the financial year.

KPMG said the Australian economy was in the middle of an inflation-induced downturn, but the worst of it was expected to pass shortly and a recovery likely in the second half of the year.