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Industry experts have warned that insolvencies in the building and construction sector have “some way to play out before they normalise”.
This prediction, from insolvency firm Jirsch Sutherland, comes after the latest Alares Credit Insights report showed that insolvencies among licensed building companies to the end of June 2024 are already on par with full-year totals in 2018 and 2019.
Commenting on these findings, partner at Jirsch Sutherland, Malcolm Howell, relayed that “these stats certainly correlate with what we are seeing in the sector”.
“Between January and July this year, Jirsch Sutherland has handled 60 matters so far in the building and construction sector, compared with 44 for the same period in 2023, and 78 matters in total over the 12-month period,” said Howell.
“There’s a real domino effect happening, and we have also seen an increase in smaller subcontractors being affected by the financial woes of head contractors.”
With Alares revealing that overall insolvencies registered roughly 50 per cent above historical levels throughout June, director at Alares, Patrick Schweizer, cautioned that “the full-year projection for 2024 is expected to well exceed historical highs”.
“There’s clearly a ‘catch up’ taking place from the COVID years (2020–2022). During these years combined, we saw about 8,000 fewer insolvencies than the historical run rate,” said Schweizer.
“This suggests the current increase in insolvencies will continue through the remainder of 2024 and potentially into next year.”
Howell emphasised that “putting your head in the sand is not an option”, stating that “DPNs, warning notices and garnishee notices are reaching record levels, and that’s pushing more and more businesses into insolvency or having to seek refinancing or restructuring”.
“In June, one in five insolvency appointments were small business restructurings, which reinforces its value as a way to get a business back on track while addressing legacy debt.”
With insolvency inquiries continuing to rise, Howell expressed that the ensuing economic environment will put pressure on sales, and prompt landlords and businesses to start collecting debts.
“Credit providers are getting even tougher with recoveries and the big four banks are increasingly taking to the courts to seek winding up orders.
“According to the RBA, housing loan arrears have increased steadily from low levels since late 2022, alongside rising household budget pressures from higher inflation and interest rates. It is truly a perfect storm.”
Howell also stressed that Jirsch Sutherland “have seen a significant number of older matters rear their heads many years later, with directors getting a major ‘DPN shock’”.
He warned that “even former directors of now-liquidated companies are receiving DPNs because they are liable for unpaid taxes or superannuation contributions”.
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