Financial strain on businesses is far from over, experts warn
Business insolvencies surged in the 2024 financial year as the Australian Taxation Office (ATO) ramped up its debt collection efforts, according to the latest Corporate Insolvency Index from Insolvency Australia.
The report shows a sharp increase in the number of companies entering insolvency, with further turbulence expected in the coming year. In FY24, there were 11,049 insolvency appointments across the nation, marking a 39% rise from the 7,942 recorded in FY23.
New South Wales led the way with 6,654 appointments, followed by Victoria with 3,501, and Queensland with 2,520. Western Australia, South Australia, the Australian Capital Territory, Tasmania, and the Northern Territory reported 817, 449, 309, 75, and nine appointments, respectively.
Gareth Gammon (pictured above left), director of Insolvency Australia, noted that the increase was driven largely by the ATO’s aggressive debt collection, particularly targeting small businesses.
“The results are astonishing but not surprising,” said Gammon, who cited ongoing cost-of-living pressures, higher interest rates, and broader economic challenges as key factors contributing to the rise in court-initiated windings-up.
The report highlighted a 99% jump in court-initiated liquidations, reaching 2,167 cases in FY24. There was also a significant uptick in businesses opting for restructuring as a survival strategy, with restructuring matters up 219% to 1,424.
Jarvis Archer (pictured above centre), founder of Business Reset and FY24’s top liquidator by appointment volume, described the increase in restructurings as a positive development.
“Compared to just one in five companies opting to restructure in FY23, that number has increased to one in four in FY24,” Archer said.
He pointed out that small business restructuring (SBR) has been particularly effective for viable small businesses, with none of the approximately 150 SBRs managed by his firm defaulting on their payment plans. Despite these restructuring efforts, Archer warned that insolvencies are likely to remain elevated.
“There are strong indicators that business insolvencies will continue increasing or remain at elevated levels for the foreseeable future,” he said, citing ATO’s issuance of 26,702 director penalty notices (DPNs) on $4.4 billion of debt in FY24, a 50% increase from the previous year, as a sign that the pressure on businesses will persist.
Scott Andersen (pictured above right), principal of Worrells, the country’s top firm by appointment volume, confirmed that the ATO is using a variety of tools, including DPNs, garnishee notices, and statutory demands, to compel directors to address their companies’ financial issues.
“The acceptance rates are extraordinarily high, which means that fundamentally viable businesses continue to exist, employ people, provide products or services, while also providing a return to creditors more than what otherwise would be the case if they were to go into liquidation,” he said. “SBRs allow an opportunity to restructure, move forward in their business and return to solvency.
“Having a conversation with an insolvency practitioner isn’t a bad thing; it doesn’t mean that a company is destined for the wrecking yard. Further, a conversation with an insolvency practitioner can mean that the financial contagion is contained and potentially curtailed from overflowing onto director and other parties’ assets that may not otherwise be exposed.”
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