Insolvency Australia says appointments rose 57pc in April-June and more to come

As the ATO ramps up its debt collection activities, cash-strapped small and medium businesses have been caught in a ‘perfect storm’ that has led to a spike in insolvencies.

National insolvency appointments soared by 57 per cent in the June quarter as the Australian Taxation Office ramped up its debt collection activities, with cash-strapped small and medium businesses in the middle of a “perfect storm”.

Insolvency Australia director Gareth Gammon said it has been a “tough year” with a significant increase in winding-up applications and ATO-initiated court recovery, particularly over the past quarter.

“Over the past year there’s been plenty of discussion in the sector about the incoming insolvency wave,” he said. “It started with a trickle and it’s now become more of a surge as economic pressures and the ATO’s debt collection activities combine to create the perfect storm.

“Beyond this last quarter, we’re now seeing an increase in court wind-ups by the big four banks, which means the next few months could well be equally challenging.”

According to the Corporate Insolvency Index, in the fourth quarter of the 2022-23 financial year there were 3008 external appointments, compared to 1921 in the April-June quarter in 2021.

In terms of volume, NSW was at the forefront, recording 1169 corporate insolvencies. Tasmania recorded the greatest percentage increase (133 per cent), followed by the ACT (64 per cent), while NSW and Queensland both recorded a 59 per cent uptick. Victoria had a 54 per cent rise, South Australia 52 per cent and Western Australia a 50 per cent increase. The number of insolvencies in the NT remained unchanged from the previous year.

Jirsch Sutherland partner Chris Baskerville said he expected insolvencies to continue to increase in the back half of the 2023 calendar year. “The rise in insolvency appointments can be directly attributed to the increase in ATO enforcement action.” he said.

“Its enforcement of outstanding debts is reaching, if not surpassing, pre-pandemic levels. The ATO appears to be less amenable to payment arrangements, especially those that propose greater than two years.”

The construction sector continues to be hit hard.

Gold Coast building firm Chelbrooke Homes called in Worrells as liquidators last week. The firm operated in Brisbane, Gold Coast and northern NSW with a number of display homes in the region.

Master Builders Gold Coast regional manager Adam Profke said more pain was to come for the building sector in the coming months. “Lot of firms have been hanging on for a long time,” said Mr Profke. “But now they are falling everywhere.”

Chelbrooke was an established firm that had hoped to trade out of its problems. “I know the owner and he has invested his life in the company,” Mr Profke said.

He said part of the problem faced by Chelbrooke was a hangover from pandemic lockdowns which affected the company’s projects across the border in NSW.

It also had faced approval delays in Tweed Shire Council of up to a year which meant many fixed-price contracts became unprofitable. That contrasted with about a month on the Gold Coast.

Petr Vrsecky, a partner with PKF Melbourne, said more insolvencies will come if the fixed rate mortgage cliff causes distressed selling and any significant drop in property prices.

“That may well be the catalyst. Interest rates continue to dampen consumer spending, and therefore it seems inevitable that businesses will be adversely affected,” he said.