The worst may be yet to come

Firms fail to weather the storm

THOUSANDS of Australian companies collapsed in the past financial year marked by a string of high-profile construction company insolvencies, and with interest rates and inflation on the rise there are expectations of a wave of failures in the next 12 months.

The construction industry suffered a perfect storm of conditions, including supply chain disruptions, skilled labour shortages, skyrocketing costs of materials and logistics, and extreme weather events.

Probuild, Privium, BA Murphy, Condev, ABD Group, Waterford Homes and Pivotal Homes were among the building sector casualties. Across all sectors in 2021-22 there were 3917 liquidations or administration appointments, Australian Securities and Investments Commission data shows.

Equifax head of product and rating services Brad Walters said creditor wind-ups triggered most insolvencies, and the construction sector had 28 per cent of all insolvencies Australia-wide.

“Small-scale operators in Australia’s construction industry could well be the canary in the coal mine for the difficulties that lie ahead for this sector,” he said.

“Rising rates of construction industry insolvencies and cost-of-living pressures continue to place a heavy financial burden on sole traders and small business owners.”

WCT Advisory managing partner Andrew Weatherley said inflation and interest rate rises would trigger more insolvencies. However, he said it would take several rate rises before it really affected businesses and that probably would not happen until the middle of next year.

“I’m advised that banks and smaller financiers have started to issue their notices of default and in particular from private lenders moving certain borrowers to default interest rates,” he said. “This will increase the pressure on borrowers and start to eat into equity of any property/assets held, but I still think it will take several months before that has a significant impact on insolvency numbers.”

Mr Weatherley said businesses would increasingly suffer from a more proactive Australian Taxation Office and banks, increasing prices, rising interest rates, falling consumer confidence and lower asset values.

He expected the ATO would stake “a more aggressive approach” in 2022-23 to collect about $32bn in tax debt. “I know myself of several leads where we have recommended liquidation because the business is not viable but the director is hanging on waiting for a trigger.”