Unhealthy trend: Wave of NDIS financial collapses hit home

NDIS providers are going bust in increasing numbers as inexperienced operators fail to cope with rising costs and the increasing complexity of the national disability scheme.

NDIS operators are increasingly facing tough times.

NDIS providers are going bust in increasing numbers as inexperienced operators fail to cope with rising costs and the increasing complexity of the national disability scheme.

Business Reset restructuring practitioner Jarvis Archer told The Australian that insolvencies for firms in the healthcare and social assistance sector, which includes NDIS-related businesses, had surged 63 per cent to 362 so far this financial year.

“We’re certainly seeing more NDIS businesses facing insolvency,” Mr Archer said. “There’s always been a few, but recently there’s been a steady stream.”

He said NDIS operators tended to grow very quickly, often reaching $3m to $5m turnover in two to three years, which puts a strain on cash flow.

“Often they grow too fast and have inexperienced operators who lose control of profitability,” he said.

He said these factors had been compounded by uncertainty in the sector and difficulties dealing with the National Disability Insurance Agency, responsible for managing the scheme.

“Tighter margins, less predictable plan funding approvals and difficulty getting paid, reportedly for up to eight months on occasion, is making it very difficult.” Mr Archer said.

“Because of the rapid growth, tight margins and high wages, operators often don’t have a buffer to fund cash flow difficulties, leading to tax debts going unpaid and piling up quickly.”

In growing signs of distress in the sector, Queensland-based disability housing and support provider Core & Capacity Disability Support collapsed in March, owing more than half a million dollars in tax debt.

In May, Melissa’s Family, a Geelong-based NDIS firm, appointed administrators owing north of $1.1m.

Another provider, Cocoon SDA Care, meanwhile lost a court bid to have delays in releasing NDIS payments declared unreasonable.

Federal Court judge Michael Wheelahan dismissed two applications filed by Cocoon’s parent company, Horizon Solutions Australia, last week. Horizon staff have not been paid wages or entitlements and say superannuation is missing from their accounts.

Mr Archer said he had spoken to two NDIS businesses recently that were both losing $30,000 a month.

“Surprisingly, neither were aware of the losses,” adding they each had $400,000 in ATO debts. “Tax debts are a symptom, not a cause, of financial difficulty.”

Business Reset restructuring practitioner Jarvis Archer.

CreditorWatch chief economist Ivan Colhoun said healthcare and social assistance firms were reliant on government funding, which often did not keep pace with rising costs.

“They support all these people that are getting older,” Mr Colhoun said. “They need more care, which costs more but they’re not getting any more support from the government.

“The cost of doing business is a lot higher for many businesses. If you think about rents, interest rates, insurance, wages and energy – they have all gone up.

“At the same time, their customers are being a bit more cautious with their money so they are being squeezed on both sides.”

Mr Jarvis said NDIS providers were not the only ones feeling the pinch, with overall insolvencies rising 40 per cent to 12,206 so far this financial year to the beginning of May.

That was up from 8744 at the same point last year, putting Australia on track to pass 15,000 company insolvencies by June 30.

“Putting that in perspective, we saw 11,053 total insolvencies last financial year, which was already the highest on record, surpassing the GFC peak in 2012,” he said.

Construction insolvencies had stabilised, up just 22 per cent on last year. However, collapses in the hospitality and transport sectors had both climbed 51 per cent. Administrative services insolvencies are up 54 per cent while professional services are 58 per cent higher.

“It paints a clear picture of the financial pressure on small businesses,” Mr Archer said

“Trading conditions are still difficult, with any relief from interest rate cuts still a way off, and the ATO is very open about its efforts to continue getting its $105bn debt book down.

“We’re still receiving a high volume of inquiries about small business restructures, the option for businesses with debts that want to survive. This is mostly triggered by the ATO’s debt collection efforts, particularly director penalty notices and winding-up applications.”

Mr Colhoun said there was some light at the end of the tunnel, with the number of insolvencies in the construction sector stabilising.

Consumer confidence had been helped by tax cuts and interest rate reductions.

“I could see that it improved a lot from the middle of last year which I put down to the tax cut. Then when you got the February interest-rate cut confidence went up again,” Mr Colhoun said.

Originally published as Unhealthy trend: Wave of NDIS financial collapses hit home