Worst year on record for businesses unable to pay debts

The tax man is cracking down, with more Australian businesses going insolvent than ever before. But, the worst could be behind us.

Australian corporate insolvencies jumped 28 per cent-plus in FY25 to reach the highest number on record.

More companies entered insolvency in the financial year just ended than in any previous year as rising costs, an uncertain trading environment and an aggressive ATO put businesses to bed.

Figures released this week by the corporate regulator show 14,105 businesses became insolvent in 2025 financial year (for the period to June 15), a 26.8 per cent leap from the 11,053 in FY24.

The increase in number comes as the tax office prepares to make good on its promise to ramp up debt enforcement as it chases an estimated $105bn in company tax debt.

On top of the standard director penalty notices dished out to the directors behind corporations in heavy arrears, the ATO has begun seizing money directly from business accounts and limiting the ability of some people to leave the country.

CreditorWatch chief economist Ivan Colhoun said the 2025 fiscal year was “clearly” the worst year for insolvencies Australia had ever recorded, but it was more a matter of “catch-up” following the ATO’s softer stance on debt during the pandemic.

Ivan Colhoun during his time at NAB. Picture: Supplied

“Cost increases – rents, insurance, interest rates, wages, electricity and gas – weaker consumer demand, especially in discretionary areas and the ATO’s renewed collections activity are the key themes,” he said. “The ATO was more lenient on companies during the pandemic, when there was so much uncertainty and at times great business stress from the unique circumstances the pandemic produced.

“When the ATO returned to normal collections activity, both companies that were financially hit by the pandemic and the companies that used the ATO for ­credit were affected,” Mr Colhoun added. “The ultimate cause in either circumstance is not the ATO, but in enforcing the overdue debt, the insolvency has been catalysed. To some extent, the current rates may represent some catch-up from low rates during the pandemic years, which may overstate the degree of pressure.”

Mr Colhoun said a plateauing number of insolvencies recorded in the final months of the 2025 ­financial year probably suggests 2024’s income tax cuts, cost-of-living relief measures and energy subsidies were being felt, but US trade policy remained a major question mark.

“CreditorWatch is expecting more of a stabilisation in insolvencies over the next six months as the costs of doing business and the cost of living has fallen, and perhaps some improvement in 2026 first half as lower interest rates benefits flow through,” he said. “That all depends on the extent to which US tariff and trade policy impacts global growth.”

Business Reset director Jarvis Archer echoed the sentiment that insolvencies were likely to stabilise, saying: “While that headline figure is concerning, some context is important. Proportionate to the number of companies operating in Australia today, this level of insolvency is actually considered normal.

Business Reset director Jarvis Archer.

“While there’s definitely a clear-out of unviable businesses, we’re also seeing a catch-up from Covid … That backlog is now being cleared, along with companies that either need to improve viability or close.”

On a state-by-state basis, NSW recorded the most corporations going insolvent last financial year, with 5427. Victoria recorded 4028 and Queensland with 2566.

Year-to-year, Northern Territory businesses suffered the most last financial year, with insolvencies increasing 102.3 per cent to 87. Of the big states, Victorian insolvencies rose the most, jumping 40.7 per cent.

Mr Colhoun said Victorian Labor policy was “part of the story”, as was “the slower rate of migration that was evident during Covid, due to the long periods of border closure and lockdown. Housing now appears relatively cheap in Melbourne compared to many other capital cities, holding some prospect of recovery.”

On an industry-by-industry basis, per the ASIC data, the construction sector was worst hit with 3417 businesses becoming insolvent last financial year, a 14.8 per cent rise from the 2977 builders that couldn’t pay their bills in the 2024 financial year.

The accommodation and food services sector was the next worst, with 2352 businesses entering insolvency in FY25, after 1668 in FY24.

XL Express on Tuesday closed abruptly after running for 35 years. Picture: Facebook

Construction sector woes have seen a number of big building names fall into insolvency recently, with tycoon Andrew Roberts’ Roberts Co calling in administrators in March, with a $20m bailout plan just struck to pay creditors and staff.

On Tuesday it was announced XL Express, a national trucking business, would also be shuttering operations with about 200 jobs to be affected. Insolvencies in the transport and warehousing sector rose 45 per cent in FY25 to 681.

Originally published as Worst year on record for businesses unable to pay debts