Wave of insolvencies about to hit Australian economy

Law firm Taylor David is sounding the alarm on the number of insolvencies about to hit the Australian economy in 2023 with a warning that the number of companies facing financial headwinds is likely to be significantly larger than during the Global Financial Crisis (GFC).

Partner Scott Taylor is foreshadowing that the financial uncertainty facing Australian businesses, across all sectors, is only just beginning and will exceed the worst of the global slowdown in 2008. The firm Taylor David is an internationally recognised leader in restructuring, bankruptcy annulments and insolvencies.

“In many ways, what we’ve seen over the last six months is the tip of the iceberg,” he said.

“When you start seeing global banks getting anxious, being sold off or collapsing, it’s a clear indication of wider uncertainty, with more to come,” Mr Taylor said.

“What happens is that people become nervous and start selling down. Term deposits are generating a more certain yield than the stock market. Global markets have been struggling since the middle of last year, and they still have a long way to go. Consumer confidence has declined.”

Mr Taylor said he expects the impact of insolvencies to be felt across most economic sectors, including construction, manufacturing, and logistics.

“Cyclically, these sectors are prone to insolvencies,” he notes.

The Australian Financial Security Authority (AFSA) found that personal insolvencies increased in January 2023. During January 2023, there were 772 new formal personal insolvencies, rising from 612 in December 2022.

Mr Taylor said interest rate rises, inflation and cost of living pressures were all starting to have a downstream impact on the Australian economy leading many businesses, big and small, to cut back or close entirely.

“Additionally, over 50% of household fixed-rate mortgages are estimated to expire in 2023.  These increased mortgage repayments will have a significant impact on households and the wider economy” he said.

Mr Taylor said with the COVID-19 rescue package payments and tax concessions at an end – the real financial impact of the post pandemic period had started to hit the balance sheets of all businesses.

“The Australian Tax Office quite rightly showed some leniency during the COVID-19 period, however there are many businesses that have not paid tax for the last two years.”

“With the ATO now back in enforcement mode, it’s inevitable that many of these businesses will be turning off the lights for good. In a practical sense, there are consequences for business owners who have swept their financial turmoil under the rug.”

Taylor David is urging businesses to be proactive before it’s too late.

“What we’ve seen is well-informed and well-advised clients who come to firms like ours before issues turn terminal. We can provide advice, restructure and potentially turn them around,” Mr Taylor said.

“It is our goal to ensure that our clients are well-equipped to navigate the challenging financial environment ahead,” he said.