Hospitality business failures are tracking more than 50 per cent up on last year

Business collapses in the food and accommodation sectors in South Australia are already more than 50 per cent higher than for the whole of the previous financial year.

Hospitality businesses have been hit hard by cost of living pressures.

Business collapses in the food and accommodation sectors in South Australia are already more than 50 per cent higher than for the whole of the previous financial year, new data from the corporate regulator shows.

Data to the end of May released recently by the Australian Securities and Investments Commission shows 86 South Australian companies in the hospitality sector had been placed in administration or liquidation to that date.

This compares with 56 for all of the previous financial year.

The trend is also playing out nationally and across many sectors, with the country bracing for the highest rate of insolvencies since the depths of the 2008 Global Financial Crisis.

Nationally there have been 8742 insolvency appointments up to April 30 this financial year, compared with 6200 during the same period a year ago.

NSW is edging towards a record year of business failures as a two-speed economic slowdown driven by poor consumer spending, interest rate and inflation pressures spell mixed fortunes for many companies.

CreditorWatch chief executive Patrick Coghlan told The Australian the cost of doing business in NSW made it very hard for many operators in the state, with the credit agency identifying Sydney’s southwest as particularly vulnerable.

Victoria had the smallest growth in insolvencies among the major of the states with rates up 31.9 per cent to 2247 — putting it on track for its worst year since 2016. The Northern Territory rose 22.6 per cent but to a small figure of 38.

Queensland had the third-highest rate of insolvencies at 1608 as of April 30, a 39 per cent jump on the previous period. It is unlikely to surpass its recent peak of 2292 in 2012. Tasmania had the sharpest increase in the past year, up 144.4 per cent, but off a small base of 66, while the ACT rose 44.1 per cent to 147 and South Australia firmed 43.5 per cent to 353.

The regions least likely to see payment defaults in the past year were mostly in South Australia and Victoria, with Norwood, Unley, Ballarat and Yarra Ranges among the most stable pockets.

The majority of insolvencies across Australia involved construction firms with accommodation and food services, as well as retail, increasing amid a pullback in consumer spending.

Insolvency rates have surged since Covid-19 support measures and flexibility around debt repayments from the Australian Taxation Office were eased.

Business Reset director and restructuring practitioner Jarvis Archer said despite the ATO’s significant efforts to date, there were still businesses with large tax debts that have so far avoided recovery action.

He added that he was now recommending his clients that are struggling with debt to consider liquidation instead of undertaking a small business restructure.

“While every small business owner wants to save their business, if you’re losing more than $10,000 per month for six months or more, or you haven’t restarted paying the ATO in the last two years, you need to be realistic about the prospects of your business,” he said.

“Either implement the changes you believe need to be made to see profit improvements, or think about whether you’d be better off with a job, and without the stress of running your small or medium business.”