The 2024 financial year was a “shocker” for business insolvencies as the ATO turbo-charged its debt collection activities, according to the latest Corporate Insolvency Index from Insolvency Australia.

While the new financial year is starting out rocky with further high levels of insolvencies likely, more businesses are reaching for restructuring lifelines to survive the turbulence.

The Index shows that in FY24, total appointments were 11,049 nationally, a 39% increase on FY23 (7,942). NSW led the way with 6,654 appointments, followed by Victoria (3,501), QLD (2,520), WA (817), SA (449), ACT (309), TAS (75), and the NT with nine appointments.

The results are astonishing but not surprising, according to Insolvency Australia director, Gareth Gammon.

“The ATO has gone into overdrive to collect debts, particularly from small businesses – and directors are faced with the ongoing cost-of-living crisis, the spectre of higher interest rates due to stubbornly high inflation, and micro- and macro-economic and political headwinds. It has resulted in a surge in Court-initiated windings-up, but conversely it has also prompted more directors to take action to save their businesses,” he said.

The Index shows that in the last financial year, there was a 99% increase in court-initiated liquidations (2,167), while restructuring matters soared by 219%, to 1,424.

The number of businesses choosing to restructure is promising, according to Insolvency Australia member and Business Reset founder, Jarvis Archer.

“Compared to just one-in-five companies opting to restructure in an effort to survive in FY23, that number has increased to one-in-four in FY24. Small Business Restructuring has become effective for viable small businesses to repair their balance sheets and cashflow, allowing them to operate sustainably in the future. Of the around 150 SBRs undertaken by my firm, none have defaulted on their payment plans to date,” he said.

“There are strong indicators that business insolvencies will continue increasing or remain at elevated levels for the foreseeable future. This will particularly impact small business; however, there are signs that medium and large businesses will experience a knock-on effect.

“At some point business owners need to make a call: ‘Can I see better times ahead, or do I cut my losses and close?’ With challenging financial conditions expected to continue to at least mid-2025, it will be difficult for some business owners to see the light at the end of the tunnel.”

Insolvency Australia member and Worrells principal, Scott Andersen calls SBRs ‘a brilliant tool’ to return a company to solvency.

“The acceptance rates are extraordinarily high, which means that fundamentally viable businesses continue to exist, employ people, provide products or services, whilst also providing a return to creditors more than what otherwise would be the case if they were to go into liquidation. SBRs allow an opportunity to restructure, move forward in their business and return to solvency,” he said.

“Having a conversation with an insolvency practitioner isn’t a bad thing; it doesn’t mean that a company is destined for the wrecking yard. Further, a conversation with an insolvency practitioner can mean that the financial contagion is contained and potentially curtailed from overflowing onto director and other parties’ assets that may not otherwise be exposed.”