Small business insolvency rates and court wind-ups on the rise

- February 8, 2024 2 MIN READ


Small business owners across Australia are facing a surge in insolvency rates as court-ordered wind-ups increase.

According to the latest corporate insolvency index from Insolvency Australia, there has been a massive 133 per cent increase in court wind-ups during the first half of the 2024 financial year compared to the previous period.

The report highlights a concerning trend, indicating that creditors, including the Australian Taxation Office (ATO) and major banks, are intensifying efforts to enforce payments, particularly on long-standing debts accumulated during and before the pandemic.

Gareth Gammon, director of Insolvency Australia, said creditors are now employing aggressive tactics to recoup their funds.

“The ATO and the banks, in particular, are using all the tools in their arsenals to recover monies owed – including long-term, legacy debts from COVID and pre-COVID years.”

NSW tops insolvency list

The data reveals that New South Wales recorded the highest number of insolvencies, followed by Victoria, Queensland, and other states. Notably, creditors’ voluntary wind-ups accounted for most appointments, signalling proactive steps by businesses to address their financial challenges.

Scott Andersen, principal of Worrells in Geelong, said early intervention is critical to managing debt. Amidst the rise in insolvencies, there remains hope for businesses willing to seek professional advice and act swiftly.

“Directors are acting earlier to address their debt issues,” Andersen said, noting the increasing popularity of the small business restructuring (SBR) regime.

Take action on debt

Bob Jacobs, founding partner of Auxilium Partners in Perth, stresses the importance of timely action to avoid insolvency, stating, “If directors act early, there will be many opportunities to restructure their affairs through formal insolvency processes and preserve livelihoods for their businesses and employees.”

Identifying at-risk sectors, Jacobs highlights challenges in industries such as retail, hospitality, and construction, which face pressures including labour shortages, increased costs, and reduced consumer spending.

On the personal insolvency front, Andrew Smith, a partner with Auxilium Partners, warns of potential increases tied to business failures and personal guarantees on company debts.

“We would expect personal insolvencies to increase with the failure of more businesses and directors who have guaranteed company debts or put their own capital into these businesses. The general cost of living is expected to remain a major issue – including housing affordability,” Smith said.

Considering these developments, Smith urges small business owners to stay informed and seek professional guidance to navigate the evolving economic landscape.

As the economic climate shifts, proactive measures and informed decision-making will be essential for small businesses to weather the storm and emerge resilient.

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