The higher than usual number of corporate insolvencies in 2024 may indicate that healthy but tough competition, driving efficiency and productivity, is at work.
In what is a free enterprise economy, competition between firms is a significant driver of economic efficiency and productivity. Competition policy focuses on the winners as the group to support and promote, with any consideration for the losers being to have them improve their operations or to cease business.
“Competition is, by its very nature, deliberate and ruthless. Competing in the marketplace is tough. Competitors try to injure one another by taking away business. This is normal behaviour, expected in a competitive market. New entrants enter the market. Some survive and some do not. Efficient enterprises expand, while others contract”.[1]
Competition policy would have those businesses that cannot sufficiently compete to be promptly liquidated, making room for more efficient market participants, with their assets redistributed to other more efficient businesses,[2] allowing a better resources’ allocation and the entry of new companies.
“The ultimate objective of promoting competition is … the beneficial consequences through low prices, higher quality goods, higher levels of service, greater variety of goods and services reflecting consumers’ wants and incentives to innovate”.
There is no role for government assistance, or socialisation of losses.
Competition law’s
“strategy resembles a crusade’s campaigns of vengeance and is diametrically opposed to insolvency’s modern approach”
of rehabilitation and restructure.[3]
But it must concede that its focus on Darwinian outcomes can have negative social and economic consequences, including loss of employment or insolvency.[4] How much insolvency law should respond to those consequences should come within any comprehensive review of insolvency law. It may be, as has been suggested, that the ‘rescue culture’ of rehabilitation and restructure has gone too far. In any event, neither the industry nor others can provide reliable data on its effectiveness.
Insolvency numbers surging and smashing
In this context, the Australian newspaper has reported [21.1.25] that corporate insolvency numbers have surged, smashed, and are record-breaking, to the tune of 7,483 in the period July-December 2024, up 47.1% on the same period last year.
In parallel, and in context, and also consistent with a healthy market, the number of businesses in Australia increased by 240,000 from 3.23 million in 2023 to 3.47 million in 2024.
Among those reported to be suffering is Star Entertainment. Hotels are said to be “holding out due to their diverse income streams” – like poker machines and gambling.
Cafes and construction industries depend on consumer and business demand. In a free enterprise economy, a fall in demand will lead to deliberate and ruthless competition, and businesses will fail. New entrants will enter the market. Efficient enterprises will expand, while others contract. There is no community or political role in saving any business.
As to the cohort of businesses responsible for non-payment of $35 billion in tax, these are hardly economically efficient, compared with the great majority that have paid their taxes. Pure competition policy might like to see them liquidated.
The insolvency numbers reported by the newspaper may be seen as representing an economic process of the culling of 7,400 inefficient businesses, being replaced by many more efficient and productive.
We are again grateful to the newspaper for bringing these numbers to our attention.
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[1] Miller’s Australian Competition Law and Policy, 3rd ed, 2028, LBC, [7.260].
[2] See Theories and goals of insolvency in common law – a critical review, (2025) J.B.L. 24-48, Samuel Biresaw, Mia Rahim.
[3] Competition law versus insolvency law: when legal doctrines clash, Christoph G. Paulus, (2013) 18 Unif. L. Rev. 65–77, at 75-76.
[4] Corones’ Competition Law in Australia, 8th ed, Thomson Reuters, Yane Svetiev, at [1.50].
