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CreditorWatch data shows private companies operating in sectors with government involvement are going broke the quickest.
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Healthcare, public admin firms ‘fail at double rate of last year’
13 December 2023
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Healthcare and public administration businesses are collapsing at twice the rate of a year ago and faster than any other sector despite heavy government involvement in both, according to the latest CreditorWatch data.
It found private company insolvencies in healthcare and social assistance had increased 71 per cent over the past 12 months, thanks to the failure of several small private businesses with NDIS contracts.
Rising even faster were collapses among businesses in public administration and safety – such as security firms – which had leapt 101 per cent, CreditorWatch said.
Businesses in both sectors were going bust quicker even than those in construction, which had the third largest increase in the rate of external administrations over the past 12 months at 59 per cent due to project delays, cost blowouts, labour shortages and supply chain disruptions.
CreditorWatch CEO Patrick Coghlan said the November Business Risk Index data on the rates of external administrations over the past 12 months illustrated the extreme stress that almost all sectors of the economy had been under.
“The fact that almost every sector has seen double-digit increases in the rates of business failures across 2023 is truly shocking,” he said.
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“When this is viewed in the context of our other key business risk indicators, such as the steep decline in the average value of invoices and the rise in B2B payment defaults, it is shaping up to be a very challenging 2024 for Australian businesses.”
The credit bureau said the most imperilled sectors for 2024 were financial and insurance services with a forecast failure rate of 4.33 per cent, followed by transport, postal and warehousing at 4.47 per cent. Food and beverage services stood out as most at risk, with an expected failure rate of 6.7 per cent.
The latest ASIC figures show 1,165 building companies have entered administration since July, up 33 per cent on the same period last year and well ahead of other sectors.
Accommodation and food services were the next most vulnerable, with 598 insolvent businesses since July but a whopping 52 per cent up on the corresponding period.
CreditorWatch said the regions with the highest risk of business failure were concentrated in Western Sydney and South-East Queensland, with Merrylands-Guildford (NSW) top, followed by Canterbury (NSW) and Bankstown (NSW).
Other indicators were also bleak, with the average value of business invoices dropping 34 per cent over the past 12 months while B2B trade payment defaults continue to trend upward, with a 57 per cent increase since January.
CreditorWatch chief economist Anneke Thompson said the steep rise in interest rates and plummeting consumer confidence had driven down the average value of invoices.
“The velocity of the drop is very large, and indicates that business activity is seriously slowing down, particularly among small businesses,” Ms Thompson said.
“Very large migration numbers have potentially masked some of the slowdown in spending by consumers, as migrants have added to the overall pool of consumers.”
With trade payment defaults also high, it was clear some businesses were very short of cash.
CreditorWatch’s national business failure rate prediction for the next 12 months was for an increase from the current rate of 4.18 per cent to 5.8 per cent.
“We expect a large increase in the business failure rate over the course of 2024, as many businesses trading at a loss will not be able to sustain another six to nine months of high interest rates and low consumer confidence,” the bureau said.
“Business failure rates have been unusually low for some time now, however, there has now been a significant increase in the number of tax defaults lodged against businesses by the ATO. This is generally a good forward indicator that business failure rates will start to rise significantly, especially given that the avenues to source cash to pay these tax debts are diminished.”
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