Australia’s latest insolvency figures from the Australian Securities and Investments Commission (ASIC) reveal a sharp increase in the number of companies entering external administration, with significant ramifications for certain sectors. The data for 2023-24 shows that over 11,000 companies faced external administration for the first time, marking a rise from previous peaks in 2011-12 and 2012-13. Despite this increase, the proportion of companies entering administration relative to the total number of registered businesses is still lower than it was a decade ago. In 2012, with around two million registered companies, the ratio was 0.53%. Today, with nearly 3.4 million companies, the ratio has decreased to 0.33%.
The number of external administrations has surged by 39% compared to the previous year, with the construction industry leading the charge, representing 27% of all cases. Accommodation and food services followed, accounting for 15%, and other services made up 9%. These sectors together represent more than half of the total external administrations.
One of the most notable changes is the dramatic rise in restructuring appointments, which have increased by over 200% from 2022-23. This surge is linked to the small business restructuring scheme introduced in January 2021. This program allows companies with liabilities under $1 million to stay in control while they develop a restructuring plan with professional help. Since the scheme began, 573 companies have successfully completed their restructuring plans by June 30, 2024. Of these, 89.4% remain registered, while 5.4% have gone into liquidation and 5.2% have been deregistered.
The latest data also reveals a disproportionate rise in insolvency appointments within the accommodation and food services sector, which experienced a 50% increase to a record 1,667 cases in the year ending June 30. This sharp rise contrasts with a more moderate 42.2% increase in retail trade appointments, which surged to 768. The total number of insolvency appointments for the year hit a new high of 11,049.
Suresh Manickam, Chief Executive of Restaurant and Catering Australia, highlighted the severe pressures facing the sector. He noted that higher interest rates, increased costs of produce and energy, and a drop in consumer spending have combined to create one of the toughest periods for restaurants and cafes. With consumers tightening their belts, spending on dining out has significantly declined, impacting the bottom lines of many businesses in the sector.
Recent figures from the Australian Bureau of Statistics support this observation, showing a 13% decrease in household spending on hotels, cafes, and restaurants since the end of 2023. This decline is sharper than the overall fall in consumer spending.
Manickam is calling for government intervention to support the hospitality industry. He suggests investing in apprenticeships and traineeships to address the skills shortage and providing energy subsidies to help offset rising costs. His appeal underscores the broader struggle within the industry as businesses grapple with a challenging economic climate.
ASIC continues to release regular updates on insolvency statistics and the number of practicing registered liquidators, which as of June 30, 2024, stood at 642—a slight decrease from the previous financial year. The commission’s latest adjustments to the data on July 26, 2024, corrected figures for the ‘Other Services’ sector and the growth rate for restructuring appointments, providing a clearer picture of the evolving business landscape in Australia.
As companies across various sectors face mounting pressures, the rise in insolvency and restructuring highlights the ongoing economic challenges and the need for targeted support to help businesses navigate these turbulent times.
With inputs from The Australian
