Insolvencies Set to Spike Further in 2025: Over 6,400 Cases Already Recorded

Construction workers work on the roof of a house being built in Alhambra, Calif., on Sept. 23, 2024. Frederic J. Brown/AFP via Getty Images

About 11,053 businesses were in the red during the 2023-24 financial year, with the latest ASIC figures suggesting the situation will deteriorate in the new year.

Insolvency occurs when a business is unable to meet its financial obligations (like paying wages or debt) as they become due, or when the value of a business’s assets is lower than its liabilities.

If a business cannot navigate its way out of being insolvent, it leads to bankruptcy and liquidation.

The latest Australian Securities and Investments Commission (ASIC) reports released on Dec. 16, show that insolvencies in the financial year ending 2024 far surpassed figures from the pandemic era (7,362 in FY 2020, and 4,235 in FY 2021).

Going forward, insolvencies look likely to break through a new benchmark with the country already recording 6,437 insolvencies midway through FY 2025.

Meanwhile, Victoria recorded the biggest jump in insolvencies from 1,078 from the year ending December 2023, to 1,846 a year later. New South Wales recorded the second highest increase from 1,894 to 2,534.

Construction Sector Hit Hardest

Construction was the most affected industry, recording a total of 1,571 insolvencies, while accommodation and food services was next in line with 1,134 businesses in the red.

Both industries recorded their highest number of insolvencies in New South Wales.

The food and accommodation industry also led the way in the number of Australian Taxation Office defaults of more than $100,000.

Industries including wholesale trade, education and mining fared better than most, but still recorded a share of the financial year’s insolvencies.

Tough New Year for Small Business

On Dec. 12, CreditorWatch, a commercial credit reporting agency which aggregates data on every Australian business, said all available data showed 2025 would be a tough year for business, especially smaller ones.

CreditorWatch’s November results for its Business Risk Index (BRI) showed insolvencies were at record highs and had surged 57 percent compared to the same period 12 months prior.

Findings also revealed the average business failure and closure rate for all sectors is currently at 5.1 percent, the highest since August 2020.

The worse news is, that rate is likely to grow to 5.6 percent in the next 12 months.

Defaults on business-to-business payments—a leading indicator of potential insolvency—are at record levels and have almost doubled in 12 months.

Court actions have also remained high as the Australian Taxation Office maintained a high number of recovery efforts.

CreditorWatch Chief Economist Ivan Colhoun said some interest rate relief from the Reserve Bank of Australia could provide cushioning to the situation in the early months of 2025.

“An expected easing cycle over 2025 will be helpful for households and businesses but is only expected to be moderate in size, without a more significant slowing in the labour market, which is not currently signalled,” he said in a statement.

“Businesses and consumers will still need to adjust to the elevated cost of doing business and cost of living, as well as current interest rates, for some months.”

The agency reported the highest business risk regions were western Sydney and south-east Queensland.

Opposition Blames Power Prices

Australian federal Opposition Leader Peter Dutton spoke out on the issue, taking to social media to lash the current government over the figures.

“Australian businesses are collapsing at record rates under the Albanese government,” he said.

“Almost 26,000 have gone under since Labor was elected, with November marking the worst month for insolvencies on record,” Dutton said. ASIC registered 1,442 insolvencies in the month of November 2024.

“Small businesses are under immense pressure with soaring energy costs making it harder to survive.”