Local and global pressures are putting increasing strain on businesses, which is translating into rising insolvencies, according to the latest Corporate Insolvency Index produced by insolvency practitioner comparison site, Insolvency Australia. In the first half of FY23, external administrator and controller appointments rose 62% compared with the previous corresponding period.
The Corporate Insolvency Index shows NSW had the most insolvencies over the six months, recording total appointments of 2,153; almost as many as during the whole of FY22 (2,402), while VIC recorded 1,192 appointments, QLD 796, WA 346, SA 133, the ACT 96, and Tasmania and the Northern Territory both had five.
As the ATO came down harder on those with tax debt, it resulted in increasing external administrations, according to Insolvency Australia director, Gareth Gammon.
“We started 2023 just as we finished 2022, with rising interest rates, surging cost-of-living, labour and materials shortages and the tax office continuing its tougher debt collection stance.”
CreditorWatch CEO, Patrick Coghlan believes those pressures are also reflected in low business confidence and that cost-of-living pressures and low wages growth is impacting consumer confidence.
“Our forecast is for business conditions to worsen across the next six to 12 months, particularly if the RBA increases rates further which seems a certainty,” he said.
“While many individuals and businesses had priced in at least one further rise to the cash rate, two more will present real serviceability problems to small businesses, particularly those in areas and sectors where demand is likely to drop or is already dropping, such as hospitality.”
While the construction sector continues to be the worst offending industry when it comes to the proportion of businesses in arrears by 60 days or more, in terms of defaults, the food and beverage services sector has the highest probability of default.
“This sector suffered the worst during Covid lockdowns and is now challenged by higher costs and labour shortages. We expect insolvencies to increase across 2023 as cost-of-living pressures reduce consumers’ disposable income and they are less inclined to visit restaurants, cafes and other hospitality venues,” Coghlan said.
“Our modelling has projected default rates rising over the next 12 months, backed up by deteriorations in key trade indicators – i.e., trade receivables, external administrations and court actions.”
Revive Financial head of business restructuring and insolvency, Jarvis Archer commented: “Construction and hospitality businesses seem to represent higher volumes of appointments. They’re looking to clean up accrued pandemic debts with a restructure or, if they can’t trade profitably post-pandemic, call it a day on their business.”