Company statistics reveal 62% jump in insolvencies
The 2022–23 financial year saw a significant spike in company insolvencies with personal insolvencies expected to follow a similar path this year.
Company insolvencies returned to pre-COVID-19 levels during the 2022–23 financial year with insolvencies increasing across all sectors, the latest Australian insolvency statistics reveal.
Insolvency data released by ASIC yesterday indicated there were 7,943 companies that entered administration or had a controller appointed during the 2022–23 financial year.
This represents a significant increase from the previous financial year when only 4,912 companies became insolvent.
However, it was a similar number to the baseline figure of 7,939 which is the average for the 2017,2018 and 2019 financial years.
Construction sector suffers the highest number of insolvencies
The construction industry saw the greatest number of insolvencies with 2,211 companies entering external administration or having a controller appointed.
This represents a 72 per cent increase from the 2021–22 financial year.
CreditorWatch chief economist Anneke Thompson said that the rate of external administrations is continuing to trend upward for the construction industry.
“The construction sector is still dealing with high input costs that are, in many cases, wiping out any profit margin on projects, and it now has the added challenge of very low dwelling approvals, resulting in a depressed demand outlook,” Ms Thompson said in a recent CreditorWatch Business Risk update.
Insolvencies jump 50 per cent for accommodation and food services
The accommodation and food services industry had the second highest number of insolvencies with 1,114 companies becoming insolvent.
In its latest Business Risk Index, CreditorWatch rated the food and beverage services as the industry with the highest risk of default due to its reliance on discretionary spending which is currently in decline.
Ms Thompson said while the food and beverage sector is coming off a period of very strong demand, this has unfortunately been countered by rising food, electricity, debt and labour costs.
“Demand is likely to fall in the coming months, while input costs are still rising, presenting very challenging conditions for café and restaurant owners,” said Ms Thompson.
Personal insolvencies also tipped to rise this financial year
After a significant downward trend in the past three years, the Australian Financial Security Authority (AFSA) is predicting personal insolvencies to increase back to long-term averages.
AFSA chief executive Tim Beresford said that personal insolvencies are at historically low levels.
“The average over the last 20 years is about 28,000 insolvencies per year,” Mr Beresford said in a speech at the 2023 Association of Independent Insolvency Practitioners (AIIP) conference last week.
“The highwater mark was 2 years after the GFC – that number was 37,000, since then we’ve drifted down.
“The 10-year average is 25,000. Over the last 3 years there has been a significant downward trend. For the last 2 years that number has sat at 10,000 insolvencies.”
The pandemic and the economic response has impacted the numbers along with changes to creditor behaviour in response to the Hayne Royal Commission.
“Over the next 12-18 months, we’re likely to see numbers heading back towards the 10-year average. Our prediction for 2023-2024 is an increase to 14,000 personal insolvencies,” said Mr Beresford.
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