Insolvencies surged by 43pc as interest rate rises loom

The number of companies that collapsed over the past month soared, with an increasingly aggressive tax office ramping up the pressure as the holiday slowdown period looms.

The number of companies that collapsed in October soared 43 per cent, with an increasingly aggressive tax office ramping up the pressure as the holiday slowdown period looms for many under-pressure businesses dealing with interest rate rises.

Revive Financial head of business, restructuring and insolvency Jarvis Archer said with the July to September quarter Business Activity Statements (BAS) falling in October, many businesses had watched their ATO debt jump.

“For many, this has put the prospect of paying their ATO debt beyond reach. Particularly for businesses seasonally quiet over Christmas, like construction, this time of year can stretch cash reserves,” Mr Archer said.

There were 569 liquidation or administration appointments ­nationally in October, almost 43 per cent more than the 399 in October last year, ­according to preliminary data from the Australian Securities & Investments Commission, collated by The ­Australian.

In October, NSW recorded 237 company collapses, up almost 22 per cent of the 195 recorded 12 months previously, while Victoria had 138 – an increase of 79 per cent from 77 the previous year.

There were 85 in Queensland in October, 42 per cent more than the 60 recorded in October last year. Western Australia recorded 54, compared to 32, South Australia 34 (19), the ACT 10 (five), and Northern Territory 4 (three).

In October Sydney-based national construction company NPM Group, which has 45,000 completed projects around Australia, went into voluntary administration. Victoria-based Como Homes, Chatham Homes and Dome Building also went into ­liquidation.

In Adelaide, Residence Building Group was placed into voluntary administration on October 3 after trading for 14 years.

Melbourne’s Nobody Denim, which sold its clothing via The Iconic, David Jones and across hundreds of stores and online, collapsed, with reports saying it owed upwards of $3m.

Mr Archer said construction, hospitality and retail had seen the biggest jumps in failures.

“Our firm has had a record number of appointments in October,” he said. “Firms are reporting it’s very difficult to find staff, particularly after three quiet years in bankruptcy limiting new recruits and their development.”

Revive Financial Partner Jarvis Archer.

Mr Archer said it was seeing companies with ATO debts on payment plans, which they could no longer afford.

“The ATO’s been very vocal about its ‘gloves-off’ approach to recovering small business tax debts. They’re seeking full payment, tightening payment plans, and more likely to reject interest remissions,” he said.

“These higher demands can cause businesses to run down cash reserves to dangerous levels. Trying to keep up with payments of $2000-$3000 per week is unrealistic for many small businesses.

“Unless trading at a strong profit to replenish these payments, it’s a ticking time bomb until a business can’t pay rent, wages or suppliers.”

WCT Advisory managing partner Andrew Weatherley said construction, followed by food services, remained the industries with the highest numbers of appointments, which was still to be expected given the challenges those industries still faced.

“Another interest rate rise will continue to impact consumer confidence and spending levels and increase the pressure on the industries, like retail and food services,” Mr Weatherley said.

“I would also expect increased rates makes it more difficult for borrowers to purchase property, including land, and obtain finance for building, putting more strain on the already challenging construction industry.”

Mr Weatherley said the last two engagements for WCT Advisory were in the food industry and both businesses ceased to trade given the diminished position they were in.

“We are seeing pressure applied by the ATO in terms of DPNs (Director Penalty Notices) being issued with the last few engagements have been a direct result of that step,” he said.

“At this stage, while I have heard it talked about, I am not aware of any engagements resulting from an ATO liability being listed with credit agencies.

“Unless a company is seeking finance or opening new trade accounts, I don’t see that being a big driver for insolvency numbers at this stage.”