‘We’ve lost a cylinder in a four-cylinder engine’: Insolvency help soars as economy struggles

Administrators are being appointed to struggling businesses at an “astonishing” rate with firms in states most exposed to higher interest rates, NSW and Victoria, at the greatest risk of going under.

As the nation’s small business ombudsman outlined an ambitious plan of tax concessions, better access to valuable government contracts and savings of up to $1 billion from cheaper payment systems for the sector, new figures on the level of insolvency appointments confirmed the pain being felt by many small and family-owned businesses.

Administrator appointments have soared over the past 12 months as businesses struggle due to the soft economy.Credit: Dion Georgopoulos

This week, the Reserve Bank downgraded its expectations for the economy which is now forecast to have grown just 0.9 per cent in the 12 months to the end of June. Job ads are rapidly falling with the RBA expecting unemployment to lift through the rest of this year.

A corporate insolvency measure compiled by Insolvency Australia shows many businesses struggling to deal with the drop-off in economic activity and increase in overall costs.

According to the company, there were 11,049 administrators appointed to companies in the 2023-24 financial year, a 39 per cent jump on the previous year.

The states with the country’s largest mortgages and the highest rents are feeling the pinch most. NSW accounts for more than half of all insolvency appointments at 6654 with another 3501 Victorian-based businesses in financial trouble. Appointments are up by 41 per cent in NSW, Victoria and Queensland.

Over the financial year, there was a 99 per cent increase in court-initiated liquidations and a 219 per cent jump in restructuring matters sorted out by administrators.

Insolvency Australia director Gareth Gammon said a range of factors were behind the surge in businesses on the brink.

“The results are astonishing but not surprising,” he said.

“The ATO [Australian Tax Office] has gone into overdrive to collect debts, particularly from small businesses – and directors are faced with the ongoing cost-of-living crisis, the spectre of higher interest rates due to stubbornly high inflation, and micro and macroeconomic and political headwinds.”

The problems behind the sharp lift in insolvencies are hitting the small and family business sector particularly hard.

The nation’s small business ombudsman Bruce Billson – a former minister in the Abbott and Howard governments – will on Thursday release a 14-point plan he believes will energise the sector.

Billson said without far-reaching changes that helped small businesses, the nation would “sleepwalk” into a “big corporate economy”.

“We need more incentives for those starting a small business, a simple, quick and cost-effective way for small-business owners to settle court disputes, and more emphasis on encouraging younger Australians to consider business ownership,” he said.

“If you believe, as I do, that small and family businesses are the ‘engine room of the economy’, we
have lost a cylinder in a four-cylinder engine in the aftermath of COVID.”

Among his proposals is to introduce a tax discount or offset scheme for new small business operators to allow them to hold more of their income in the first three years of operation. Small businesses are most likely to fail within three years of starting up.

Small businesses would have a greater chance to win lucrative government contracts by “decoding” the rules and practices of public sector procurement that Billson said currently favours large, established players.

It should be mandatory for banks and other financial service providers to charge the lowest fee available for tap-and-go payment systems, a move Billson estimates would save businesses about $1 billion a year.

Every cabinet submission would have a “small business impact statement” appraisal, a ban on “unfair trading or business practices” that distort competition while regulations governing the sector would be overhauled to reflect the high costs that confront small businesses.

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