The Australian newspaper most usefully for some keeps a focus on insolvency numbers, this time in an article [1] that extracts comments from an insolvency firm’s economic and business report, under the foreboding heading – “The worst is still to come”! [2]
Corporate insolvencies
The firm’s report [3] is a little more objective, saying that it expects “elevated numbers” of corporate insolvencies and challenging business conditions to continue in 2025, based apparently, on its expertise in “inflationary pressures, high energy costs, and poor consumer sentiment”.
Other geopolitical and political risks are described.
These predicted elevated numbers would follow “a record number of insolvencies at 13,451” in 2024, of a total business corporate population of over 2.5 million.
It is no surprise that the report properly says that “additional pressure [is] being placed on businesses by the ATO” to recover “$50 billion” in taxes not paid by the private sector.
Then there are “toxic workplace cultures … large-scale price gouging, consumer exploitation, market manipulation” and AML breaches in the private sector that the report lists.
“Poor consumer sentiment” is not surprising.
This level of tax and corporate default, if accurate, raises a query as to why insolvency numbers should not in fact be higher, to rid the market of non-compliant businesses taking an unfair competitive advantage over those legitimate businesses that do pay their tax, and employees, and otherwise comply with the law.
In that respect, based on the figures in the report, the competitive markets do seem to be working well in the construction and hospitality sectors where tax and other non-compliance is said to be high if not extreme.
The market will or should otherwise dispose of “unprepared and overleveraged businesses” as a matter of routine.
Improved productivity may be an outcome.
Sole traders
Of course, the firm’s report talks only of corporate businesses, many just a one director company, with its liquidation, if that happens at all, providing no impediment to the director starting again the next day.
The more prevalent, by number, of small businesses, are those run by individuals actually operating in their own name. The number of personal insolvencies is on a slide – just over 11,600 in 2023-2024, compared with the long-term average of 21,000 – perhaps because, if you are risking your own personal liability, you will take some care.
The useful report, of McGrath Nicol, is here. The Australian’s is here.
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[1] 27 February 2025, G Korporaal.
[2] One way to sell a newspaper!
[3] McGrath Nicol mcgrathnicol_forecast-2025_web.pdf
