Another grim month for industry with highest insolvency figures since 2015

Monthly business insolvencies have risen to a level not seen since 2015, as a long-expected landslide of corporate collapses hits the Australian economy.

Figures presented by the Australian Securities and Investments Commission (ASIC) this week show 967 businesses entered external administration or had a controller appointed to them in February.

That is a significant jump over the 555 collapses recorded in January, and the single largest monthly tally since October 2015.

The construction sector remains particularly vulnerable, ASIC data shows, with 272 businesses going under in the month of February alone, the most of any industry sector.

Accommodation and food services were the next hardest hit, tallying 137 collapses.

All told, 406 more businesses collapsed in February 2024 than the combined February average of 2017, 2018, and 2019.

While the numbers are startling, the spiking number of businesses going bust is not a surprise.

Difficult trading conditions, inflationary pressures raising the cost of doing business, and the Australian Taxation Office’s (ATO) changing approach to debts accrued through the COVID-19 pandemic are forcing businesses to make hard decisions about their future.

Industry onlookers have suggested the long-expected spike is not a freak event, but a catch-up to the number of insolvencies that would have occurred if extraordinary business support measures were not enacted through pandemic lockdowns.

As the ATO takes a stronger approach to debt collection and compliance than in years past, it is still advising businesses to step forward and inform the tax office of their hardship before their liabilities grow.

For businesses that do face insurmountable challenges, there are ways to avoid the harshest crackdowns from the ATO.

In September last year, former ATO commissioner Chris Jordan said tax advisors should guide their clients towards voluntary administration before the tax office pursues its own wind-up orders.

“You know the signs when a business is struggling, on the brink of insolvency, or perhaps needs to be told the time has come to exit gracefully,” he said.