The impact of the last three years is significant and economic issues persist both in Australia and globally.
Inflationary pressures, ATO Defaults, Discretionary spending and high interest rates are still major driving issues nationwide. There is no doubt we are in a tough economic cycle, which is impacting business across every industry.
The Construction sector has seen the most impact, particularly over the past 12 months, with inflation continuing to put pressure on costings, especially those still affected by fixed price contracts. While Sureties have supported this sector, they are now facing large claims as a result.
As we reflect on the close of FYE2024, reported data has been very telling, with corporate insolvency appointments having more than doubled since this time last year.
Insolvencies recorded in May 24’ alone was 122% higher than May 22’, and the highest number of Insolvencies for a single month on record.
The top 2 reported increases in Insolvency by Sectors, was led by Construction at 27%, soon followed by Accommodation & food with a 15% of insolvencies through 2023-24.
We have seen some big names in the media, from PBS Constructions, Sara Lee, Booze Bud, Porter Davis, and most recently, Booktopia, just to name a few.
These collapses reflect the ongoing struggle throughout many industries, and experts are warning we will continue to see a rise in Insolvencies through the latter half of 2024.
According to ASIC, the prominent reported causes of Business Failure were:
Restructuring appointments grew by over 200% in 2023–24 compared to 2022–23 and now represent 12.9% of all external administrations.
A concerning trend has emerged in Australia, with the average number of late payment days increasing significantly compared to the previous year. Equifax recently reported 39% increases in days beyond Payment Terms within Construction alone, Retail is not too far behind at a 36% increase.
Fiscal policies are also anticipated to be tightened in advanced economies as higher interest rates have made the costs of servicing debt expensive.
The recent passing of the Payment Times Reporting Scheme, which will recognize large entities paying small business in 20 days or less, and name and shame those who are slow to pay may assist in these percentages.
We also see firmer collection tactics from the Australian Taxation Office (ATO) which are now catching up with many hard-hit businesses.
The ATO has reported a 17% growth in debt per annuum, currently sat at AUD$33.4B in small business collectable debt, supercharged by their response to the Pandemic.
Their 2024 strategy has been to utilise the Director Penalty Notice (DPN), as part of their strategy to recover $30B in overdue small business tax. The ramifications of the recovery efforts are palpable in all areas of insolvencies numbers, and small business restructuring.
Three Key ATO focuses:
It is reported the ATO is becoming much stricter on Repayment plans and demanding the debts be paid in full on any defaults on repayment. They will also continue to charge interest on debts at a staggering 11.38%
This will only continue to have a domino effect on Company and Directors alike and will continue to contribute to the corporate insolvency statistics as we head into FYE25.
With the high rate of increase in corporate insolvencies, solvency concerns will occupy the minds of CFOs and Board members in 2024. With the ATO’s systematic recovery action, this will continue to have a domino effect on Company and Directors alike particularly in the light of ongoing global factors, such as persisting cash flow difficulties; continued disruption to supply chains; disruptive global influences a crunch on mainstream credit; and a downturn in the number of initial public offerings and appetite for risk in the private capital markets.
Businesses will need to remain vigilant on trading terms, credit acceptance and payment security.
At GSA Credit and Financial Risk, we are committed to helping our clients navigate the current market landscape, with proactive credit risk management strategies and helping to mitigate potential financial losses.
We are offering a range of solutions alongside our Trade Credit Insurance, such as:
We can assist in helping you make informed credit decisions, protecting your interests and ultimately ensure the long-term success of your business.
