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More aggressive action by the ATO and big four banks combined with the mortgage cliff make the rest of the year “challenging”, says Insolvency Australia.
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Insolvencies to surge because of economy, rise in court wind-ups
14 August 2023
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10 minute read
Insolvencies will surge over the next few months as economic pressures combine with increasingly aggressive debt collection by the ATO and big four banks, Insolvency Australia says.
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Director Gareth Gammon said there had been a significant increase in winding-up applications and ATO-initiated court recoveries, particularly in the second half of FY23.
“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.
“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.”
Insolvency Australia’s Corporate Insolvency Index for FY23 shows appointments rose 57 per cent in the final quarter to 3,008 against just 1,921 in the final quarter of FY22.
Much of that was driven by an increase in court wind-ups over the second half of FY23, which rose 36 per cent compared with the first half of the year and 84 per cent compared with the second half of FY22.
Insolvency Australia members echoed Mr Gammon’s concerns.
Jirsch Sutherland partner Chris Baskerville predicted insolvencies to keep rising to the end of 2023 with the ATO as prime mover.
“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.”
PKF Melbourne partner Petr Vrsecky said the fixed rate mortgage cliff, when large number of borrowers come off low honeymoon rates, would prompt a rise in insolvencies caused by distressed selling.
“That may well be the catalyst,” he said. “Interest rates continue to dampen consumer spending and therefore it seems inevitable that businesses will be adversely affected.
“There’s meant to be a recycling of capital, meaning that inefficient businesses fail and better managed businesses get more capital allocated to them.
“It would therefore seem inevitable that the rate of insolvencies must increase following the pandemic era interference and taxpayer support, which made it too easy to operate businesses that had no place being there.”
Taylor Insolvencies founder and bankruptcy trustee Joshua Taylor said the combination of high interest rates and ATO action would increase personal insolvencies.
“Personal insolvencies have been more subdued but I see the bankruptcy / personal debt sector picking up steam,” he said.
BCR Advisory director and founder John Morgan said some sectors were particularly vulnerable.
“The number of insolvency appointments will continue to increase as businesses struggle with the impact of the RBA’s interest rate hikes and the expected increase in collection pressure from the ATO,” he said.
“The construction industry is in a very poor state as the cost of money and materials continues to increase, and we have also seen an uptick in the number of cafes and restaurants looking for insolvency advice.”
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