Insolvencies rise again in September quarter, ASIC data reveals
The number of companies entering insolvencies has increased 21 per cent in the September quarter with construction, accommodation, and food services still the worst-hit sectors.
ASIC’s latest insolvency statistics indicate that insolvencies increased 21 per cent from the previous September quarter to 2,486 insolvencies for the September quarter this year, based on data at 1 October 2023.
This was also a slight increase from the June quarter this year when 2,258 insolvencies were recorded.
Construction continues to be the worst sector for insolvencies with 783 construction companies entering external administration of having a controller appointed in the September quarter.
This was followed by accommodation and food services which had 340 companies enter insolvency in the last quarter. Retail trade also saw a significant increase in the rate of insolvencies with insolvencies increasing almost 40 per cent compared with the same period last year.
CreditorWatch said the food and beverage sector was the industry with the highest probability of business failure over the next 12 months at 6.83 per cent.
“These businesses tend to pay high rents and have input costs that can increase quickly and frequently,” the credit agency said in its latest Business Risk Index.
“Cafes and restaurants need to order food daily, and therefore price rises can be passed on to them very quickly.”
The transport, postal and warehousing sector is also proving riskier, as the surge of online shopping over lockdown periods has eased dramatically, according to CreditorWatch.
“Newer businesses that were opened in response to this surge in logistics demand will be finding operating conditions now much more challenging,” it said.
The Business Risk Index report indicated that key business indicators, such as trade payment defaults, credit enquiries and court actions also reflect the challenging conditions facing businesses.
The average value of invoices for Australian businesses has dropped 42 per cent over the past 12 months, while business-to-business trade payment defaults continue to trend upward, with a 57 per cent year-on-year increase.
Payment defaults are a key predictor of future business failures. Credit enquiries were down slightly but remained up 58 per cent year-on-year.
CreditorWatch chief executive Patrick Coghlan, says easing inflation is a positive sign for business activity going into 2024 but conditions remain challenging.
“Rents, energy prices and the cost of services are keeping the heat in inflation but it’s encouraging to see some of the other drivers normalising. However, our forecast is still for the business failure rate to increase over the next 12 months,” said Mr Coghlan.
CreditorWatch chief economist Anneke Thompson said business conditions, particularly among small businesses which are more sensitive to drops in consumer spending, are likely to remain subdued until at least mid-2024 when cuts to the cash rate are forecast.
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