Building sector ‘by far’ the leading industry hit by insolvency figures

Construction firms continue to hit the wall in increasing numbers contributing to rising Qld insolvency rates. See who went bust in September.

Construction firms continue to hit the wall in increasing numbers contributing to rising insolvency rates and a prevalence of “zombie companies”.

There were 73 insolvencies across Queensland in September up 16 per cent from 63 at the same time last year. Some of the failed firms are so-called zombie companies that have few assets to recoup for creditors.

WCT Advisory managing partner Andrew Weatherley said insolvencies would continue to climb, with more appointments in New South Wales and Queensland as the taxman took a hard line against companies falling behind in tax payment.

“Weekly statistics from the Australian Securities and Investments Commission continue to show a steady increase in insolvencies nationwide and I expect this trend to continue, particularly driven by the Australia Taxation Office,” said Mr Weatherley. “Construction is by far the leading industry impacted followed by hospitality and retail.

“That’s to be expected given the increase in interest rates, which is starting to hit consumer pockets and discretionary spending.”

Mr Weatherley said it would take some months for the challenges to really hit the construction sector as the Christmas shutdown approached.

New data from the National Housing Finance and Investment Corporation (NHFIC) this week show building material and labour cost inflation rose at its fastest pace in nearly 50 years on the back of supply constraints over the last 12 months. The cost of structural timber, plywood and steel reinforcement have all increased by more than 25 per cent over the past year, with some products such as structural timber rising by more than 40 per cent.

Last month, the collapse of a development company behind a $500m project on the Gold Coast impacted some of Queensland’s biggest construction companies including Hutchinson Builders. Nerang Street Pty was wound up after a meeting of creditors with William Robson, of Robson Cotter Insolvency Group, appointed liquidator.

According to a report lodged with ASIC, four secured creditors are owed a combined $65.5m while unsecured creditors are owed $40.8m. Nerang St, which has realisable assets of about $23.5m, was hit by funding problems as well as the impact of the pandemic.

Administrators also were appointed to New Farm-based Art Struct, which specialised in renovations of inner-city Brisbane homes. The building firm owes almost $2m.

Revive Financial partner Jarvis Archer said that while there had been some failures in the tech and crypto industries, the construction, retail and hospitality sectors continue to dominate the industries facing insolvency.

“Many of these are essentially zombie companies,” said Mr Archer. “They’ve either sold their business, closed down due to the pandemic or are trying to reduce debts. Staffing and supply chain issues are still major issues for small business.”

The main benefit of entering a liquidation or formal restructuring engagement is that the directors can avoid personal liability for their company’s debts owed to the ATO. “The number of companies without assets is a challenge,” he said.