Company failures on track to reach 12-year high: ASIC
Over 10,000 businesses are expected to enter external administration by June, the regulator predicts.
Companies are collapsing at levels not since 2012, ASIC says, with external administrations on track to exceed 10,000 by the end of the financial year.
ASIC recorded 7,742 companies failures in the past nine months, over a one-third increase on the same period last year, according to insolvency data published yesterday.
“With only one quarter remaining this financial year, it’s expected that the number of companies entering external administration by 30 June 2024 will exceed 10,000,” the regulator said.
It said the surging levels of company failures had not been seen since the 2012–2013 financial year, when 9,254 companies entered external administration.
From July 2023 to March, the construction industry and the accommodation and food services industry were hit the hardest by the tough operating environment.
Construction companies accounted for over one-fifth of all corporate failures at 27.7 per cent or 2,142 and over 15 per cent were from companies in accommodation and food services at 1,174.
Other industries with high failure rates included retail (536), professional, scientific and technical services (439) and manufacturing (401).
Restructuring (878) and court liquidation appointments (1,593) also increased by 294.6 per cent and 218.8 per cent, respectively, when compared to the same period last financial year.
ASIC said these numbers were higher than numbers recorded for the full year period ending 30 June 2023, which were 447 and 1,081 respectively.
Experts have attributed the surging insolvency levels to businesses’ operating costs, consumers’ living costs and more aggressive ATO action.
CreditorWatch CEO Patrick Coghlan said “most businesses, particularly those that are consumer facing and therefore exposed to the vagaries of discretionary spending, are currently being hit by a range of heavy impacts”.
The average failure rate across all industries was expected to be around 0.3 per cent, but businesses in the food and beverage services sector most likely to become insolvent by a “considerable margin”, with CreditorWatch’s Business Risk Index showing an average failure rate of 7.44 per cent.
Public administration and safety was the next riskiest industry at 5.66 per cent, followed by arts and recreation services at 5.42 per cent.
Economist Anneke Thompson said conditions would only get harder in the absence of rate cuts.
“Of particular concern is the continued high level of trade payment defaults which, coupled with the ATO now lodging defaults for tax debts outstanding of $100,000 or more at increasing rates, means that more and more businesses are unable to meet their supplier payments on time,” she said.
“This has a ripple effect on B2B trade, and we expect these trade payment defaults to continue to increase while interest rates remain elevated.”
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