Business insolvency rates are returning to their pre-COVID norms, according to new ASIC data, suggesting leniency offered by the tax office and regulators earlier in the pandemic has come to an end.
Australia’s corporate regulator says 1567 companies entered external administration or controller appointments in the June quarter of 2022, the highest quarterly reading since March 2020.
John Winter, CEO of the Australian Restructuring Insolvency and Turnaround Association, says the watchdog’s July data showed a similar curve towards pre-COVID insolvency levels.
The regulator counted 674 insolvency appointments in July this year, Winter says, up from 385 in July 2021 and 341 in July 2022. Some 697 were tallied in July 2019.
The return to form suggests the Australian Taxation Office (ATO), which took a gentle approach to struggling businesses when COVID-19 first disrupted business operations, has well and truly changed its approach.
“There’s absolutely no doubt that this is being driven by the ATO finally taking appropriate recovery action against the mountain of debt and non-reporting they’ve built up,” he said.
Such changes were flagged in May, when the tax office declared it was delivering 40 director penalty notices a day to current and former company directors on the hook for outstanding GST, superannuation, and PAYG withholding.
However, Winter says he was taken aback by how soon the insolvency figures bounced back to pre-COVID levels.
“But how quickly we’ve seen a return to pre-COVID levels after they started that enforcement action has even surprised me!” he said.
Beyond struggling companies which experienced tax office leniency through the early years of the pandemic, construction firms battling today’s high inflation are also represented in the ASIC data.
Some 446 construction firms entered external administration or controller appointments through the June quarter of this year, up from 271 in the March quarter.
The last time so many construction companies buckled was in the December 2019 quarter, when 444 called in the administrators.
Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
