The Australian business community was thrown into turmoil in FY24 as a surge in insolvencies gripped the nation. 

The Corporate Insolvency Index has unveiled the extent of the crisis, with a staggering 39% increase in company failures compared to the previous year. The ATO’s intensified debt collection efforts, coupled with economic challenges, have created a perfect storm for businesses. While a growing number of companies are turning to restructuring to stay afloat, the broader economic outlook suggests ongoing difficulties for the sector.

According to the Corporate Insolvency Index, in FY24, total appointments were 11,049 nationally, a 39% increase on FY23 (7,942). NSW led the way with 6,654 appointments, followed by Victoria (3,501), QLD (2,520), WA (817), SA (449), ACT (309), TAS (75), and the NT with nine appointments.

“The results are astonishing but not surprising,” says Gareth Gammon, Director of Insolvency Australia. “The ATO 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 macro-economic and political headwinds. It has resulted in a surge in Court-initiated windings-up, but conversely it has also prompted more directors to take action to save their businesses.”

The Index shows that in the last financial year, there was a 99% increase in Court-initiated liquidations (2,167), while restructuring matters soared by 219%, to 1,424. 

The number of businesses choosing to restructure is “promising”, says Insolvency Australia member Jarvis Archer, founder of Business Reset and FY24’s Top Liquidator by Appointment Volume. “Compared to just one-in-five companies opting to restructure in an effort to survive in FY23, that number has increased to one-in-four in FY24. Small Business Restructuring has become very effective for viable small businesses to repair their balance sheets and cash-flow, allowing them to operate sustainably in the future. Of the around 150 SBRs undertaken by my firm, none have defaulted on their payment plans to date.”

However, businesses aren’t yet out of the woods. “There are strong indicators that business insolvencies will continue increasing or remain at elevated levels for the foreseeable future. This will particularly impact small business; however, there are signs that medium and large businesses will experience a knock-on effect,” Archer says. “The ATO issued 26,702 DPNs on $4.4 billion of debt in FY24, up 50% on FY23. That’s debt that isn’t on a payment plan, where business owners aren’t engaging with the ATO. [It] will continue to work through its debt book to restore a compliant tax environment in accordance with its public interest duties to ensure a level playing field for business.

“At some point business owners need to make a call: ‘Can I see better times ahead, or do I cut my losses and close?’ With challenging financial conditions expected to continue to at least mid-2025, it will be difficult for some business owners to see the light at the end of the tunnel.”

Scott Andersen, Insolvency Australia member and Principal of Worrells, the country’s Top Firm by Appointment Volume, says, “It’s certain the ATO is using the Director Penalty Notice (DPN) regime to ‘encourage’ directors to make a decision regarding the financial affairs of their company, but it’s only one method they’ve been using. I’ve seen and heard that with increasing consistency, the ATO is reporting debtors to the creditor reporting agencies and issuing garnishee notices to companies’ debtors and their banks. It’s clear that if the ATO isn’t satisfied with the level of engagement by the taxpayer, they will then issue statutory demands for payment to collect.” 

Andersen calls SBRs “a brilliant tool to return a company to solvency.”. “The acceptance rates are extraordinarily high, which means that fundamentally viable businesses continue to exist, employ people, provide products or services, whilst also providing a return to creditors more than what otherwise would be the case if they were to go into liquidation. SBRs allow an opportunity to restructure, move forward in their business and return to solvency.”

He adds, “Having a conversation with an insolvency practitioner isn’t a bad thing; it doesn’t mean that a company is destined for the wrecking yard. Further, a conversation with an insolvency practitioner can mean that the financial contagion is contained and potentially curtailed from overflowing onto director and other parties’ assets that may not otherwise be exposed.” 

Archer echoes these comments: “Financial difficulty can be really isolating. The fear paralyses decision-making and for many business owners, having never been in financial difficulty before, they don’t know where to start. Getting an outside opinion is your first step. Your accountant bookkeeper, a restructuring specialist… any of these people should be available for a free or low-cost discussion to help give you some insight and understanding about your situation. What you’ll often find is it’s not as bad as you think and there are positive outcomes if you take action.”

Insolvency firms gear up 

Gammon, who also heads up specialist recruitment firm Insolvency Talent, says the current and predicted demand for insolvency and restructuring experts, has led to many firms actively recruiting to build future-proof capacity. “The insolvency job market has become even more competitive than ever. Skilled staff are now looking to change firms, while new accounting graduates are recognising that this sector provides a great opportunity. The insolvency/restructuring sector is committed to supporting struggling businesses, which makes it a great career choice, especially in an economic downturn.” 

The Insolvency Australia Corporate Insolvency Index can be downloaded at: https://www.insolvencyaustralia.com.au/information/reports/

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