The Australian newspaper has again given a useful account of corporate insolvency numbers, although slightly premature given that personal insolvency numbers were not out until the next day: Insolvency wave builds, etc 29 April 2025.
Corporate numbers are increasing as would be expected. Looking at these numbers positively, they may well indicate a useful culling from the market of the less efficient and productive businesses, to be replaced by new and better performers.
The context is also important. As the Treasurer recently explained, also in the Australian, while 29,000 Australian businesses are said to have closed down in the last 3 years, 850,000 new businesses were established.[1]
Overall, the numbers of insolvencies are very small compared with the 2.5 million + businesses in Australia.
One qualification is that the appointment of a liquidator costs money, which may not be covered by the remaining assets of the company, and which money directors and creditors may not have, or not wish to pay. The initiation of liquidation is a privatised process, and many more insolvent businesses are estimated – in the thousands – to simply be deregistered.
Back in 2015, the government described[2] the liquidation process in positive terms, whereby firms’ “entries” and “exits”
“play an important role in fostering innovation, competition, and thereby driving productivity and economic growth. … Competition from new firms, or even the threat of potential entry, forces existing firms to be more efficient. The exit of inefficient firms can provide for greater allocative efficiency as their former resources can be put to higher value uses”.
As well, a Reserve Bank report recently advised that over 90% of displaced employees are re-employed by another business within a few months or have been retained, and they have been able to recover their pre-insolvency earnings within a year.[3]
Similarly, the Productivity Commission refers to US studies showing that laid-off workers often found new jobs at more productive firms and that the relatively high rates of US labour ‘churn’ after the COVID-19 pandemic potentially assisted productivity growth.[4]
None of this economic analysis is to deny what can be the trauma and dislocation of business collapse.
That is more so, with personal insolvency – or bankruptcy – which is different. While a company director can walk away from a liquidation and start again, bankruptcy of a sole trader imposes restrictions for at least three years.
Fortunately, bankruptcy numbers are well down with a projected 12,000+ in 2024-2025 comparing with 21,078 around 5 years ago, in 2019-2020.
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[1] Dr Jim Chambers, The Australian, 24 April 2025.
[2] PC’s Business Set-up, Transfer and Closure, Final Report, 2015.
[3] Financial Stability Review, Reserve Bank of Australia, April 2025
[4] Productivity Commission, Quarterly productivity bulletin – March 2025, p 5.
2 Responses
Great article !
Thanks!