Australian law firm Taylor David is predicting a wave of insolvencies across Australian business in 2023.
The company has warned that the number of companies facing financial headwinds is likely to be significantly larger than during the Global Financial Crisis (GFC) in 2008.
Partner Scott Taylor is foreshadowing that the financial uncertainty facing Australian businesses, across all sectors, is only just beginning.
“In many ways, what we’ve seen over the last six months is the tip of the iceberg,” Taylor 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.
"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."
Taylor added that he expects the impact of insolvencies to be felt across most economic sectors, particularly construction, manufacturing and logistics.
"Cyclically, these sectors are prone to insolvencies," he noted.
The Australian Financial Security Authority (AFSA) found that personal insolvencies increased in January 2023, with 772 new formal personal insolvencies - a rise from 612 in December 2022.
Of the new personal insolvencies, 414 were bankruptcies, 344 were debt agreements, and 14 were personal insolvency agreements.
The retail sector saw the largest increase in insolvencies, up 58.8% in January from the prior month - a total of 81 businesses. Transport, postal and warehousing was up 55.4% to 87 businesses in the same period, with healthcare and social assistance seeing the most insolvencies across 88 businesses, up 43.5%.
More recently, Australian fashion label Alice McCall entered into liquidation on February 17, with insolvency firm Worrells’ principal Matthew Kucianski appointed as liquidator. It owed more than $1 million in debts, including $677,922.93 to the Australian Taxation Office, alongside $540,000 in aged payables.
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 - both big and small - to cut back or close entirely.
“Additionally, over 50% of household fixed-rate mortgages are estimated to expire in 2023,” he said. “These increased mortgage repayments will have a significant impact on households and the wider economy.”
With COVID-19 rescue payments and tax concessions at an end, Taylor said the real financial impact of the post-pandemic period has 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.
"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."
Taylor David is an Australian law firm specialising in financial services, including restructuring, bankruptcy annulments and insolvencies.