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Small and medium businesses in construction and retail are at the highest risk of collapse, according to CreditorWatch.
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External administrations hit record high in March
17 April 2024
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Deteriorating trading conditions and weak consumer demand drove external administrations to a record high last month, with small and medium businesses in construction and retail at the highest risk of collapse.
The CreditorWatch Business Risk Index found external administrations surged to over 1,200 in March, a year-on-year increase of 22 per cent.
CEO Patrick Coghlan attributed the record wave of insolvencies to cost pressures on businesses and cost-of-living pressures on consumers.
“Most businesses, particularly those that are consumer facing and therefore exposed to the vagaries of discretionary spending, are currently being hit by a range of heavy impacts,” Coghlan said.
Businesses in the food and beverage services sector were the most at risk of collapse by a “considerable margin” with an average failure rate of 7.44 per cent, the index said.
Public administration and safety was the next riskiest industry at 5.66 per cent, followed by arts and recreation services at 5.42 per cent.
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The mining sector (5 per cent) was also of concern, experiencing a 74 per cent increase in the rate of external administrations over the past 12 months.
Chief economist Anneke Thompson said trading conditions were getting harder for most small and medium businesses.
“Of particular concern is the continued high level of trade payment defaults which, coupled with the ATO now lodging defaults for tax debts outstanding of $100,000 or more at increasing rates, means that more and more businesses are unable to meet their supplier payments on time,” she says.
“This has a ripple effect on B2B trade, and we expect these trade payment defaults to continue to increase while interest rates remain elevated.”
According to CreditorWatch’s records of over 15,000 tax debt defaults, construction companies defaulted on ATO tax debts greater than $100,000 the most frequently last month (23.8 per cent).
Smaller businesses in the construction services sector often operated as sole traders or partnerships, meaning large tax debts were more difficult to pay off, Thompson said.
“These businesses often have debt secured against personal assets, and debts of $100,000 or more would be a severe imposition on their ability to meet their ongoing financial obligations,” she said.
Defaults on ATO debts were also high for businesses in professional, scientific and technical services (12.5 per cent), food and beverage services (10.7 per cent) and retail trade (10.1 per cent).
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