Insolvencies across all Australian industries have risen by an average 38 per cent in April 2024 compared to the same month last year, with retail insolvencies above average at 46 per cent.
This is according to new data from credit reporting bureau CreditorWatch.
Retail insolvencies in April come fifth from the top, with electricity, gas, water and waste services recording the highest percentage lift of 89 per cent, followed by education and training at 87 per cent and mining at 72 per cent.
Construction insolvencies are on par with retail at 46 per cent.
The total number of insolvencies across the board is up 34 per cent year-on-year and 41 per cent above its pre-COVID maximum.
This is in line with data from the Australian Security and Investments Commission (ASIC), which show that total insolvency appointments across all businesses in April hit 1,383, up by 548 in the same month last year - or 65.6 per cent. This has risen to 1,711 in May.
When only counting first-time insolvencies, the number is also quite high at 995 in April and 1,245 in May.
ASIC data shows that retail trade is the fourth highest in terms of volume, with 687 insolvencies in the 2023-2024 period, behind other services, accommodation and food services and construction.
The latest news comes as fashion brands and businesses such as Dion Lee, Nique, Tigerlily and Marquee Retail Group called in the administrators this year.
CreditorWatch CEO Patrick Coghlan said this combination of deteriorations in the firm’s key measures of business health reflects the increasing impact of cost-of-living pressures on consumers.
“Multiple interest rate hikes and stubbornly high inflation have forced consumers at all income levels to cut back on spending,” he said.
“We don’t expect a meaningful turnaround in consumer confidence until the impact of at least two rate cuts has been felt, which won’t be until well into 2025.
“The only bright-spot for households is next-month’s tax cuts, although we don’t see much of this going to discretionary spending.”
Meanwhile, CreditorWatch also confirmed that B2B payment defaults hit a new record in May, up 21 per cent on April’s record and a 58 per cent year-on-year increase.
The firm has identified a strong correlation between payment defaults and business failure, with a business having a 20 per cent chance of failure in the following 12 months if it has a default registered against it. This rises to 42 per cent for two defaults and 62 per cent for three.
CreditorWatch chief economist Anneke Thompson said record high trade payment defaults point to increasing cash flow problems within the Australian business sector.
“We have known for some time now that consumers have pulled back on spending quite dramatically as high interest rates and inflation smashed household budgets,” she said.
“This trend took some time to flow through to businesses but is now showing up in the data in the form of increasing late payment rates and rising court actions, as well as increased business failures and insolvencies.”
“Despite income tax cuts taking effect in July 2024, it is likely that the remainder of 2024 will be extremely challenging for businesses, as interest rates are unlikely to fall before the end of the year, and money flowing through the economy is focused on non-discretionary goods and services.”
Court actions also continue to rise and are now sitting above pre-COVID levels, indicating that creditors have resumed their regular collections activity. CreditorWatch’s May data shows that they are up 63 per cent year-on-year.
According to the crediting bureau, the Australian economy has shown remarkable resilience in the face of rising interest rates and high inflation. The labour market has been very strong, with businesses still hiring new staff in good numbers.
However, it pointed to the record high migration over the last 12 months, saying it may have been disguising underlying stress in the economy.
“Now that migration is moderating, and both consumers and businesses are recognising that interest rates will stay high for some time, confidence is now falling, and businesses are showing clear signs of financial stress,” the firm reported.
“We expect that business trading conditions for the remainder of 2024 will be some of the hardest in recent memory, and that insolvency rates – already sitting higher than their pre-COVID peaks – will rise further from here and not begin to moderate until the RBA provides some interest rate relief.”