According to new figures from the Australian Securities and Investments Commission (ASIC), the September quarter saw business insolvencies soar to their highest level since 2015.
The data reveals that 2486 businesses collapsed in the three months leading up to September, which is the highest number in a single quarter since December 2015 when 2499 insolvencies were reported.
Reflecting the current cost of living crisis and rising inflation rates, insolvencies increased from 10 percent on the previous quarter and 21 percent from the same period last year.
This follows on from PASA’s August report, which revealed that national insolvency appointments had soared by 57 percent in the June quarter after the ATO increased its debt collection activities, affecting cash-strapped small and medium businesses who were buckling under pressure.
The new data shows that construction was the hardest hit industry followed by accommodation and food services, with the greatest number of collapses occuring in NSW during the September quarter – up 20 percent on the previous quarter at 1142 (46 percent of all insolvencies).
Victoria saw the next highest number of insolvencies at 610, followed by Queensland (420), Western Australia (160), South Australia (83), the ACT (34), Tasmania (22) and the Northern Territory (15).
As the critical holiday period approaches – typically a time when businesses cash in and make their highest profits – concerns are mounting for the struggling retail and hospitality sectors.
Consumers are watching their pockets as the cost of living crisis continues to spiral and the threat of further interest rate rises looms, which could have a significant impact on small businesses and lead to further collapses.
Leigh Prior, Liquidator from Agile Business Advisory told The Australian that the ATO’s aggressive approach to debt recovery was a large reason for the recent rise in insolvency activity, as previously reported by PASA in August.
Prior said, “If you look at winding up applications (from the ATO), they went from zero a year ago and now it feels like they’re getting back to where they were in 2019.
“They (ATO) also have powers that let them report debts to credit reporting agencies, and they have started sending notices out to debtors saying that if they don’t bring their accounts up to date or commit to meeting payment arrangements, then they will report those entities to credit reporting agencies.
“That’s obviously a concern for those businesses because that identifies defaults the same way as defaults to trade suppliers and banks.”
This begs the question for procurement leaders: are your small suppliers safe?
We know that Australia is an oligopoly, meaning there isn’t an inexhaustible supply of small suppliers – and the situation is only getting worse as reflected in this new data from ASIC.
So, what can you do to help the small suppliers that you will need to rely on in the future?