Insolvencies fall in SA but experts warn it’s crunch time for hospitality, construction

Historic Leonards Mill headlines a short list of business insolvencies in January, but experts warn there’s more pain ahead for SA’s hospitality operators.

Business insolvencies in South Australia have dipped to their lowest level in more than a year, but experts say it’s “crunch time” for hospitality and construction operators struggling to survive the lingering effects of Covid-19.

The latest Australian Securities and Investments Commission (ASIC) statistics reveal that just six local companies fell into administration or liquidation in January, down from 14 in December.

They include historic Second Valley restaurant Leonards Mill, Seaton-based Connect Civil Contractors and Findon-based Kyzo Catering.

It is the lowest number of corporate insolvencies since November 2020, when temporary changes to insolvency laws were in place to protect businesses battling through the worst of the pandemic.

Since those temporary measures were removed at the beginning of last year, 10-20 South Australian businesses have hit the wall each month, well below the pre-Covid average.

However Jirsch Sutherland national managing partner Bradd Morelli believes a catch-up in the number of insolvencies is inevitable at some stage, with the “cleaning out” of companies propped up by the temporary insolvency protections and other government stimulus programs.

“Without those ‘lifebuoys’, we’re expecting an increase in insolvencies as many zombies finally reach the end of the line,” he said.

“Some business owners have taken on more debt to survive the pandemic. And now, with the ATO starting debt collection again, it’s important to be on the front foot.”

While the ATO recently signalled it was recommencing debt recovery actions “after a general pause during lockdowns”, most insolvency practitioners are expecting a softly-softly approach in the lead up to this year’s federal election.

Husband and wife duo Iain Calvert and Hayley Pember-Calvert, who took over the award-winning Leonards Mill in mid-2017, said unsustainable Covid-19 restrictions and a lack of support from their landlord had left them with no choice but to permanently close the venue’s doors.

The historic Leonards Mill restaurant at Second Valley has closed its doors.

It followed news Cafe Komodo on Prospect Rd had shut its doors temporarily due to fluctuating Covid-19 restrictions, while beloved Adelaide food institutions, Cork & Cleaver and La Tombola, have also permanently shut in recent weeks as their respective owners head into retirement.

Oracle Insolvency Services partner Dominic Cantone said it would be crunch time for many hospitality businesses in the next few weeks, and for others hit by the Omicron variant.

“The danger point for these businesses comes at the end of January, usually the quietest month of the year, when businesses face paying their suppliers for goods received in November and December,” he said.

“Then the ATO comes calling. To help businesses through the Christmas break, the ATO traditionally gives them until the end of February to meet the December quarter BAS payment.

“However, the next quarterly BAS payment, covering January to March, is then due at

the end of April, just two months later.”

Mr Cantone said the quick turnaround in BAS payments would test the cash flow of many businesses.

The construction industry is another seen as particularly vulnerable following the high profile collapses last year of Queensland builder Privium and Melbourne’s ABD Group.

Locally, SA Structural, Hart Luxury Homes and Bespoke Development were among the building industry companies to have been wound up last year.

The construction sector typically accounts for 25 per cent of all insolvencies nationally.

And according to credit reporting agency, CreditorWatch, industry payment times have blown out during Covid-19, with a record high 12.6 per cent of payments to suppliers and contractors now more than 60 days overdue – the highest rate of any industry.