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Skills shortage driving SMEs to the brink, says Insolvency Australia
26 July 2022
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The nationwide skills shortage is becoming a key factor in forcing businesses into insolvency with SMEs hardest hit, said Insolvency Australia.
Director Gareth Gammon said the hospitality, tourism and construction sectors were especially vulnerable.
“We’re in uncharted waters, staff shortages are endemic across multiple industries and the unemployment rate at a record low of 3.5 per cent,” said Mr Gammon.
“This is one of the greatest challenges being faced by businesses, particularly SMEs.”
Managing partner of Oracle Insolvency Services, Nick Cooper, said most of his firm’s recent insolvency appointments had been in the hospitality sector, where labour shortages were the single biggest issue.
“The hospitality sector, in particular, is finding it tough to find workers,” said Mr Cooper. “Also, the supply of components, raw materials and services is becoming problematic for many businesses.
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“As business suppliers suffer from staff shortages, there are delays in getting stock and so on to keep a business running, there are also delays in the postal and freight services, due to staff shortages.
“More recently the labour shortages are also impacting the financial services sector, even opening bank accounts with major banks, we’ve seen the timeframe blow out from one day to two weeks.”
Domenic Calabretta, CEO of turnaround specialist Mackay Goodwin, agreed labour shortages were becoming an issue in insolvencies.
“It is definitely one factor of many in the current businesses cases we are dealing with, along with having cash-flow tightened and margins squeezed,” said Mr Calabretta.
“It creates a domino effect where the staff shortages result in a loss of customer service and ultimately lead to reduced revenue.”
Mr Calabretta said moves by the government to ease staff shortages with visa rule changes might not come quickly enough to help, with some taking more than a year from application to provision.
Construction companies were especially exposed, he said.
“We are witnessing serious issues in the construction sector with several large, well-known companies going into liquidation,” said Mr Calabretta.
“Workforce issues are also exacerbated by the rapid increase in cost of construction materials, leaving many companies struggling to honour quotes that might be a year or more out of date in terms of pricing, by the time a job is awarded.
“Australian engineering job vacancies are at a 10-year high, with the pandemic creating state border closures and the exit of many foreign workers who left Australia to return home – and they haven’t yet returned here, leaving a huge skills shortage.”
Head of Auxilium Partners, Bob Jacobs, said builders who entered fixed price contracts during the government construction stimulus were making up a large proportion of insolvencies.
“Unfortunately, there are little-to-no assets for insolvency practitioners to recover for creditors,” said Mr Jacobs. “I suggest tradespeople and suppliers to the building industry reconsider their payment terms.
“Creditors should not be treated like a bank and payment on delivery prevents domino-effect insolvencies.”
He said another factor was the resumption of debt collection by the ATO in May, when it began issuing 30-40 director penalty notices (DPNs) a day.
Mr Jacobs said the move was counterproductive when trying to keep businesses afloat.
“[It] meant directors had to act, with most opting for voluntary administration, the Deeds of Company Arrangement (DOCA) or liquidation,” said Mr Jacobs.
“I think the initial impact will be corporate insolvencies, while personal insolvencies will also rise, but probably in a year or two behind the rise in corporate filings.”
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