Construction and hospitality insolvencies continue to climb: ASIC
Hospitality and construction firms continue to lead insolvency statistics, but more are keeping their doors open through restructuring schemes.
Annual insolvencies have been rising across all sectors since 2022, the ASIC data showed.
ASIC insolvency data as of 30 March 2025 indicate that 3,306 companies became insolvent for the first time in the first three months of the year.
Restructuring appointments have seen a seven-fold increase over the past three years, climbing from 295 in the financial year to March 2023, to 2,206 in the financial year to March 2025.
This reflects a growing awareness of an ATO scheme to facilitate small business restructuring (SBR) as an alternative to liquidation, Insolvency Australia said in a release.
"The surge in Small Business Restructuring highlights a significant shift in how distressed businesses approach financial difficulties," Gareth Gammon, director of Insolvency Australia said in a media release.
"Rather than defaulting to liquidation, more directors are recognising restructuring as a viable pathway to recovery. This trend not only preserves jobs and supplier relationships but also provides better returns for creditors, reinforcing the importance of early intervention and expert insolvency guidance."
Nearly half of SBR appointments have been concentrated in the construction and hospitality sectors, which respectively made up 28.3 and 21.3 per cent of SBRs, ASIC data showed.
The construction industry has been grappling with challenges including labour shortages, high material costs, planning and approval delays and increased compliance costs, Master Builders Australia said.
Construction businesses also struggle with cash flow issues, especially around tax time. Mismatched timings of income and liabilities can cause liquidity problems for businesses, given the construction industry is dominated by small, fragmented firms, and subcontracting is common.
In the financial year to March 2025, 2,636 construction companies became insolvent for the first time, up 23 per cent from the year prior, ASIC data showed.
"Many [construction] businesses remain burdened with legacy debt from fixed-price contracts that resulted in significant losses. SBR has proven to be an invaluable lifeline for these businesses," Michael Renton, CEO and founding partner of Xact Accounting said.
"It allows fundamentally healthy companies to restructure their obligations, stabilise cash flow, and continue trading effectively."
Hospitality sector insolvencies have also been climbing in the post-COVID era, as the ATO has resumed its regular approach to tax debt collection following a relatively lax period throughout the pandemic.
The accommodation and food services industry saw insolvencies rise by 57 per cent in the 12 months to March 2025 in comparison to the year earlier, with 1,837 businesses going insolvent, compared to 1,168 the year prior.
"The ATO has been applying maximum pressure to collect its debts. Many businesses have simply ceased paying the ATO as they struggle with increased costs due to inflation,” Shane Rose, Managing Director of Rose Corporate said.
“In the hospitality sector, particularly in Victoria, many businesses had substantial ATO debt coming out of COVID-19.”
Rose said that the SBR scheme enabled struggling businesses to continue operating through challenging times, when otherwise the only option would have been liquidation.
"We've had success with clients going through an SBR, ensuring business continuation where liquidation would have been the only alternative."
