Economy in eye of ‘storm’

Insolvencies soar as businesses struggle with debt and lack of cash

The Australian economy is in the middle of a “perfect storm” with insolvencies rising to an almost decade high last month as businesses struggle with crushing debt and lack of cash.

Australian Securities & Investment Commission figures reveal there have been 2566 insolvency appointments so far this calendar year to March 31, compared to 1881 in the same period in 2023.

Revive Financial head of business restructuring and insolvency Jarvis Archer said insolvencies were tracking about 36 per cent higher in the 2024 financial year compared to 2022-23. They were averaging about 826 a month, up from 660 a month last year.

“They just seem to keep going up. We’re in a perfect storm for higher levels of insolvency over the coming year,” Mr Archer said.

“During the pandemic insolvencies dropped to about half. So there were around 7000 less company insolvencies over the 2021 and 2022 financial years. We returned to normal levels in 2023, and this financial year we’re seeing the beginning of the clean-up.”

He said that over the past year, poor economic conditions had caused substantial trading losses, depleting cash and working capital to unsustainable levels. “Costs are up and sales are down due to inflation and lower consumer spending,” said Mr Archer.

He added it was going to be “really difficult” for many businesses to get through the next six to 12 months, particularly if the Australian Taxation Office ramped up debt collection.

He said preliminary numbers indicated more than 1040 companies entered external administration in March, the highest number since September 2015. For the first time ever, small business restructuring (SBR) appointments had exceeded voluntary administration and court liquidation appointments.

“This demonstrates the increase in small businesses looking to proactively deal with their ATO and other debts for the survival of their business,” he said.

The SBR process, introduced in 2021 to help businesses with less than $1m in debt recover from the pandemic, has proved highly successful. It has a greater than 92 per cent success rate and an average debt write-off of about 80 per cent.

Construction remained the major casualty of the current insolvency wave with a stream of major national companies calling in administrators.

Building giant St Hilliers, which does work for the Department of Defence, went into voluntary administration in February leaving 21 jobs in limbo and initially owing $13m while national fit-out and refurbishment business Rork Projects collapsed owing about $30m. Last week Queensland civil construction specialists Allroads went into liquidation leaving a string of roads and defence projects with an uncertain future.

Combined the construction, hospitality and retail sectors account for about 50 per cent of all insolvencies in Australia.