According to newly released official figures, national insolvency appointments soared by 57 per cent in the June quarter, which saw the ATO increase its debt collection activities affecting cash-strapped small and medium businesses who are buckling under pressure.
Many small local suppliers struggled during Covid but were kept afloat by government support, such as JobSeeker, cash flow boosts, grants and tax savings. A significant number have still not fully recovered from this period, meaning latent debt and cash-flow problems are now surfacing.
Insolvency Australia Director Gareth Gammon said, “Over the past year, there’s been plenty of discussion in the sector about the incoming insolvency wave.
“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.
“Beyond this last quarter, 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.”
According to the Corporate Insolvency Index, in the fourth quarter of the 2022-23 financial year there were 3008 external appointments, which was a significant jump compared to just 1921 in the April-June quarter of 2021.
Racking up the most insolvencies was NSW, recording 1169.
Tasmania recorded a huge 133 percentage increase which was the greatest across the country, followed by the ACT at 64 per cent.
NSW and Queensland both recorded a 59 per cent rise.
Amongst the remaining states, Victoria had a 54 per cent increase, South Australia 52 per cent and Western Australia 50 per cent.
Only the NT remained unscathed with no change from the previous year.
Chris Baskerville, partner at Jirsch Sutherland, attributed the rise in insolvency appointments directly to the increase in ATO enforcement action.
“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”, he said.
Petr Vrsecky, partner at PKF Melbourne, warned “it seems inevitable that businesses will be adversely affected” as interest rates continue to dampen consumer spending.
“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”, he said.
Australia is an oligopoly, meaning there isn’t an inexhaustible supply of small suppliers. This poses an important question for procurement professionals:
What are you doing to save the small suppliers you will need to rely on in the future?