Thousands of businesses collapsed into administration in the 2021-22 financial year
Thousands of Australian businesses have disappeared over the past year – and experts say it will only get worse in the months to come.
It’s no secret that the construction industry is in crisis, with dozens of major companies collapsing in recent months, leaving staff devastated and future owners in dire straits.
A number of well-known retailers – such as luxury shoe chain Sneakerboy and grocery app Send – have also closed in recent times, while the catastrophic collapse of investment firm Remi Capital has also made headlines earlier this year.
But as it turns out, these examples are just the tip of the iceberg, with Australia recording a staggering 3,917 liquidations or administrative appointments across all sectors in the 2021-22 financial year.
While the construction sector led the charge, accounting for 28% of all insolvencies, companies in countless sectors also failed in the face of soaring inflation and interest rate pressures, Covid chaos, labor shortages and supply chain disruptions.
There have been 1,536 collapses in NSW, with Victoria recording 1,022, Queensland 665, WA 350, South Australia 196, 91 for the ACT, 29 for Tasmania and 28 in the Northern Territory.
According to consumer credit reporting agency Equifax, the total number of construction and non-construction businesses entering external administration in Australia in May was more than 30% higher than a year earlier, notably on the east coast, and particularly notable was the “substantial increase in creditor liquidations, voluntary administrations and restructuring appointments”.
“More Pain Ahead”
Retail analyst Geoff Dart, of DGC Advisory, told news.com.au this week that as Australia’s economy was hit by falling consumer sentiment, soaring interest rates and cost of living pressures, more retailers in particular would fall.
“I think fringe players and transitional brands that don’t have that established name … might have some issues,” Mr. Dart said.
“In tough times, people tend to go for safe and established brands, as well as retailers with a good omnichannel setup that can also deliver online.
“If you look at household incomes, spending is still way ahead of income, and interest rate hikes will only make things worse with wage compression – we see no increase in real wages, and people tend to save their savings for a bad day.In my opinion, people are reluctant to spend in difficult times.
Mr Dart said high-end retailers could be among the hardest hit.
“People are cutting back on luxury spending and discretionary spending on things they don’t need,” he explained.
“It was already taking a hit even when Covid started there had been the biggest drop in discretionary spending with the lowest levels ever, and when you have the cost of everything going up like gas, food and l mortgage, there are so many other priorities and people are going for value brands.
And Mr Dart warned there would be “more pain ahead” for Australian retailers, explaining that many would be forced to cut ranges to cut costs as the economy stagnated.
Queensland University of Technology retail expert Dr Gary Mortimer agrees and says the next 12-18 months will be “difficult” for retailers, especially those in the spend space. discretionary.
“As the cost of fuel, food and electricity rises, I think we will continue to see consumers shopping in the ‘needs’ category, including things like groceries, insurance illness and education, but they will be less likely to spend in the ‘needs’ category of ‘wanted’ categories like electronics, clothing, shoes and accessories,” he explained.
Earlier this year, Gareth Gammon, independent market director of insolvency services Insolvency Australia, predicted the ‘first wave’ of insolvencies would come following the federal election and into the new financial year, with insolvencies rising companies probably in the third and fourth quarters of this calendar year.
“After two years of ‘limbo’ for the insolvency sector, we are seeing an increase in the number of external administrators and although levels have not yet returned to normal, they are expected to happen over the next 18 months or more,” he said. .
Bob Jacobs, a member of Insolvency Australia and head of Auxilium Partners, said some businesses were particularly at risk.
“The first to fall are businesses that are no longer viable due to post-Covid social changes, or inherent financial instability deferred by Covid,” he said.
“The main reasons for this are firstly, government support during Covid has put many non-viable businesses into a holding pattern, and secondly, the special pandemic laws that prevented insolvency are no longer in effect, which which means the ATO and creditors can collect outstanding debts.”
The grim warning comas after the March ABS figures revealed that almost a quarter of companies expected it to be difficult or very difficult to meet their financial commitments over the next three months.
A “first hit” industry
As life returns to normal after Covid, insiders brace for an onslaught of insolvencies that were halted during the pandemic, with the ATO and banks now demanding payments on normal terms.
It comes at the same time as cost of living pressures start to bite consumers, with CreditorWatch chief economist Anneke Thompson saying news.com.au insolvencies will “absolutely” increase soon.
“There’s no doubt about it…everyone’s expenses have increased, and for most businesses, their revenues aren’t growing at the same rate, so businesses that were already struggling will have problems as soon as the costs increase as dramatically as they have right now,” she explained.
“We already see in our data that the financial sector is likely to be the first to be affected.
“And we’re already seeing the real estate market react immediately to interest rate increases, so mortgage brokers and anyone involved in home lending (could be at risk)…we’re already noticing the likelihood of default.”
Ms Thompson said the vulnerability of financial and insurance services and rental and property services reflected housing market risk, while the education and training industry was now the third-fastest sector. more vulnerable due to lack of international student migration, with smaller vocational colleges and training industries facing greater risk of collapse.
Meanwhile, Ms Thompson said retail will “eventually suffer”, particularly retailers exposed to housing industry risks, such as furniture, white goods and electrical retailers.
She said the hit would likely begin towards the end of the year, once the construction backlog has been cleared and demand for new homes has stagnated.