Insolvency is on the rise.
After years of pandemic-related support measures and temporary relief, Australia is now seeing a surge in business failures. According to ASIC, more than 11,000 companies entered external administration in the 2023–24 financial year, a 39% increase from the previous year.
The numbers paint a sobering picture for businesses struggling with high debt levels. However, staying informed about insolvency trends can help you recognise early warning signs and take proactive steps to protect your business.
Whether you’re a business owner facing financial uncertainty or have clients needing advice, understanding the latest insolvency data can help you be well-informed in 2025.
2024 Insolvency Trends: What the Data Tells Us
ASIC’s latest annual insolvency data confirms a sharp increase in business failures. Between July and December 2024, insolvencies were up 47% compared to the same period in 2023, with December alone seeing a 43.4% spike in external administrations.
Industries hardest hit in 2024 include:
- Construction: 27% of all insolvencies (2,975 businesses)
- Accommodation and Food Services: 15% of all insolvencies (1,667 businesses)
- Other Services (including retail and personal services): 9% of all insolvencies (1,039 businesses)
High costs, labour shortages, and slowing consumer spending have severely impacted these sectors. Construction, in particular, remains vulnerable due to rising material prices and delays in payments from larger projects.
Despite the overall increase in insolvencies, not all industries are struggling. Some sectors, such as healthcare and technology, have remained resilient, benefiting from sustained demand and government-backed incentives.
What's Driving the Surge in Insolvencies?
Several economic and structural factors are pushing insolvency rates higher.
Rising Cost Pressures
Businesses are being squeezed from all sides. Higher energy prices, insurance premiums, and rent increases make it harder to remain profitable. Small business owners also face up to 52% electricity cost hikes, among other rising overheads — adding to financial strain.
ATO Debt Recovery and Director Penalty Notices (DPNs)
The ATO has ramped up debt collection efforts, issuing 26,702 Director Penalty Notices (DPNs) in 2023–24, worth $4.4 billion. Businesses with tax debts over $100,000 are particularly vulnerable, as recent data from CreditorWatch shows that one-third of businesses in this position ultimately fail.
End of COVID-Era Support and Market Adjustments
Many businesses that survived on government support are now grappling with reality. As financial buffers deplete, companies that defer tax obligations and loans now face the consequences of accumulated debt.
Approval rates for Small Business Restructuring (SBR) proposals are also declining compared to earlier years of the process — highlighting the importance of engaging a reputable practitioner with plenty of experience.
Changes in Consumer Spending
With interest rates remaining high, disposable income is shrinking. Consumers are cutting back on discretionary spending, affecting industries like retail, hospitality, and personal services. This shift is leaving many businesses with lower-than-expected revenue and cash flow issues.
What Businesses and Advisors Need to Do
While the data shows insolvencies are rising, that doesn’t mean failure is inevitable. Businesses that take proactive steps today can significantly improve their chances of survival into the future.
1. Stay Ahead of Financial Warning Signs
Poor cash flow, mounting tax debts, and falling revenue are all early indicators of trouble. If you or your clients spot these signs, act now — delaying intervention only reduces available options and lowers the chance of survival.
2. Consider Small Business Restructuring (SBR) Eligibility
Businesses are increasingly choosing Small Business Restructuring (SBR) over voluntary administration. In 2023–24, restructuring appointments grew by 200%, accounting for 12.9% of all external administrations.
Unlike liquidation, SBR allows businesses to continue trading while restructuring debts. However, strict eligibility criteria limit access to SBR to businesses with liabilities under $1 million, along with other requirements. If you’re considering SBR for your business, download our free guide or contact our SBR experts.
3. Engage Insolvency Experts Early
If you or your clients are struggling with debt, seeking professional advice is crucial. A business with high tax debt, late superannuation payments, or an overdue loan may still have plenty of options — but only if action is taken early.
4. Prioritise Tax and Secured Debt
Unpaid tax and secured debts (like business loans) should be managed strategically. Engaging with lenders promptly can lead to better repayment terms and reduce the risk of forced insolvency.
5. Don’t Wait for a DPN — Act Before It’s Too Late
Receiving a Director Penalty Notice (DPN) is a clear red flag. If your business has significant unpaid tax liabilities, taking action before the ATO escalates enforcement is the best way to protect both personal and business assets.
A Difficult Road, But Not a Dead End
The insolvency outlook for 2025 is challenging, but not without solutions. While the data indicates rising business failures, it also highlights recovery pathways like Small Business Restructuring that can help companies regain stability.
If your business shows signs of distress, don’t wait until options run out. Early intervention, expert guidance, and strategic financial planning can mean the difference between insolvency and recovery.
At SALEA Advisory, we specialise in helping businesses navigate financial uncertainty. If you’re concerned about cash flow, tax debts, or restructuring options, get in touch today for expert guidance tailored to your situation.
