Aussie regulator flags surge in insolvencies to 11-year high

Australia’s corporate regulator said yesterday it expects the number of companies falling into insolvency to reach an 11-year high, with the construction and hospitality industries worst hit, according to its latest insolvency data.

In the nine months to March 31, 7,742 companies had entered administration, up 36.2 per cent from the previous corresponding period, said the Australian Securities and Investments Commission (ASIC).

It expects that figure to exceed 10,000 by the end of the financial year to June 30, “a level not seen since the 2012–2013 financial year”, said the regulator.

The construction and hospitality industries had the highest number of company failures, accounting for nearly 27.7 per cent and 15.2 per cent of all insolvencies, respectively.

Sluggish consumer demand and high operating costs have forced some companies to scale back operations, while a credit squeeze has made it harder and more expensive for companies to borrow.

“The most common cause was inadequate cash flow or blaming a ‘high cash rate’, simply meaning debts (outgoings) are higher than earnings,” said Jessica Amir, a markets strategist with trading platform Moomoo, in a client note.

ASIC said restructuring and court liquidation appointments increased more than three-fold, compared with the previous corresponding nine-month period.

The Reserve Bank of Australia has flagged that 2024 is likely to be another tough year for businesses and households due to decades-high inflation and interest rates, fuelling few expectations of a rate relief during the year.

Australia’s central bank held interest rates at a 12-year high of 4.35 per cent last month for a third straight meeting.