Construction industry hit hardest as company collapses increase by 40pc

More than 80 NSW businesses are failing every week — a jump of nearly 40 per cent in a year — with the construction industry hit hardest. See the full list here.

More than 80 NSW businesses are failing every week, a jump of nearly 40 per cent in a year.

The industry hit hardest is construction — one of the most important to economic growth — which has been slammed by higher expenses for materials and staff, along with a slump in sales as borrowing costs soar.

The surge in failures also has significant implications for the federal government, with a big increase in unpaid tax.

Data published by the Australian Securities and Investments Commission shows more than 2200 NSW businesses called in external controllers between July 2023 and mid-January, compared to fewer than 1600 for the same period of 2022-23.

Nationally, failure rates in 2023-24 are running at nearly a quarter higher than the “base level” prior to the pandemic, according to the data.

CreditorWatch CEO Patrick Coghlan said three main factors contributed to the increase.

Trading conditions had deteriorated due to high inflation and interest rates, along with disruptions to the availability of labour and materials, all of which had driven up costs.

Mr Coghlan also said some businesses that had been shielded from insolvency during Covid by laws that offered temporary protections were now going under.

And firms that sprang up during the pandemic in sectors such as construction were also now failing, he said.

CreditorWatch CEO Patrick Coghlan says many struggling companies have been using the ATO ‘as a bank’. Picture: Supplied

Some tradies had decided to work for themselves because they saw the chance to make more money. But, after trading conditions deteriorated, they discovered how hard it was to run a business.

“They don’t know how to manage a company the best way, particularly in a downturn,” Mr Coghlan said.

“They end up closing the company down and going back to the safety of full-time employment.”

In 2022-23, businesses entering administration had unpaid taxes of $5.4bn, up from $4.1bn in the previous financial year.

Mr Coghlan said the ATO had “started to ramp up tax defaults against companies.” More than 10,000 were filed in October, he said.

“It’s a really powerful bit of leverage as a collection tool,” Mr Coghlan said.

It was likely to be “bringing forward” some administrator appointments as directors realised the seriousness of the situation they were in.

Many struggling companies had been using “the ATO as a bank,” he said.

But then the ATO acted to close down the companies and “when they do, all of the other creditors get a shock” because they hadn’t been aware there was a problem.

The ASIC statistics show the number of construction companies under administration is 80 per cent greater than the next most-affected industry -— accommodation and food.

Housing Industry Association senior economist Tom Devitt said two potential drivers of a turnaround would be interest rate cuts – now expected as soon as mid-year – and changes to government policy such as allowing increased density in existing suburbs.

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