Australian business failures surge 33pc but signs of recovery emerge

Business insolvencies have surged to a record high but a new report suggests they may have peaked and there are promising signs for the embattled construction and hospitality industries.

Business insolvencies surged to a record high over the past year, but there are hopes the rate of failures may have peaked, with tax cuts, government cost of living measures and falling interest rates injecting some confidence into Australian consumers to go out and spend.

A total of 14,716 businesses fell into some form of insolvency in the year to June, a 33 per cent increase on the previous year, with construction and hospitality the two industries feeling the brunt of the economic malaise, together making up more than 40 per cent of all business failures.

But a new report released by credit reporting agency CreditorWatch on Wednesday offers some promising signs of a recovery in business conditions.

According to its Business Risk Index, the monthly rate of insolvencies has plateaued, with June’s 1305 business collapses down 10 per cent on the peak last November.

Meanwhile business to business payment defaults – an early indicator of financial stress and a leading indicator of future insolvencies – fell 6.5 per cent in June to their lowest level since July 2024, and down 25 per cent from the high recorded last December.

CreditorWatch chief executive Patrick Coghlan said that while the data showed the rate of insolvencies may have peaked, the global economic environment remained “highly uncertain”.

“The decline in CreditorWatch trade payment defaults is a promising signal that business cash flow pressures may be easing, but with insolvencies still running 33 per cent above FY24 levels, and particularly elevated in hospitality and construction, I’m not getting too excited just yet,” he said.

Cafes and restaurants have been doing it tough amid the cost of living crisis, but there are some promising signs for the sector.

“The sharp rise in closures across sectors traditionally seen as more stable – like healthcare and education – underlines the breadth of the economic strain.

“We’ll continue to monitor for early signs of sustained recovery, but the next six months will be critical for determining whether insolvency rates begin to fall or remain stubbornly high.”

Insolvencies increased in all states in 2024-25, with Victoria reporting the largest increase, up 48.2 per cent to 4242. NSW remained home to the largest number of failures despite reporting the smallest increase of 22.8 per cent to 5690.

Insolvencies in Queensland increased by 32.2 per cent to 2691, while in South Australia, the number of failures was up 41.8 per cent to 645.

There are some promising signs for the construction industry after a spate of collapses after the pandemic. Picture: Ben Clark

Oracle Insolvency Services partner Dominic Cantone said that while the challenges facing the construction and hospitality sectors were beginning to ease, the rate of insolvencies was likely to remain elevated as long as creditors, including the ATO, continued their chase to get their debts repaid.

“Those restaurants and cafes that got over the hard period, when it was a real battle – they’ve got over the hump and now they’re on the other side. And in construction, supply (of materials) has improved and so there doesn’t end up being the penalties of delay, and margins are better as well,” he said.

“But I think there’s probably a few more challenges ahead, particularly with directors’ personal liabilities.

“Those who have personal guarantees – there’s people and companies that are chasing them a bit harder now, and the ATO is a lot more active in the pursuit of their debts, especially over the last 12 months.”

Originally published as Australian business failures surge 33pc but signs of recovery emerge