With the country facing a severe skills shortage, more and more businesses are being driven into insolvency. This is happening across the economy, from start-ups to long-established companies. The SME segment has been identified as the hardest hit by this situation.
Businesses operating in the hospitability industry were highlighted as being particularly affected by labour shortages as they found it increasingly hard to recruit workers. Their challenges have worsened due to problems securing the supply of various inputs, raw materials, and services.
Oracle Insolvency Services managing partner, Nick Cooper, notes that the skills shortage has also caused problems for the financial sector, with banks reportedly delaying tasks such as account opening. Insolvency Australia’s director, Gareth Gammon, has termed the current skills shortage as an epidemic across multiple industries and that it is one of the biggest challenges facing businesses. He is encouraging distressed businesses to consult with a specialist adviser on the way forward.
Bob Jacobs of Auxilium Partners also added that an increasing number of SMEs in WA were falling into insolvency. He however pointed to the recent move by the Australian Tax Office (ATO) to issue Director Penalty Notices (DPNs) as being the reason some directors were opting for voluntary administration, Deeds of Company Arrangement (DOCA), or liquidation. He added that supply chain issues causing stock shortages were also having an impact. He predicted that corporate solvencies would come first, with personal insolvencies likely to rise for 1-2 years after corporate filings.
Domenic Calabretta, the CEO of Mackay Goodwin, has said that though he had not seen any cases where labour shortages directly caused insolvency, there was a domino effect that was leading to loss of customer service and consequently loss of revenue for many businesses. He acknowledged that staff shortages were a contributing factor, alongside other problems like tightened cash flows and margins. He estimates that continued staff shortages in the tourism and hospitality sectors will lead to more distressed businesses in the coming months.
The construction industry has also been found to be affected, with industry giants Condev and Probuild having notably gone into liquidation, alongside many other smaller firms like Hotondo Homes, Solido Builders, and Waterford Homes. Victoria and Queensland have been particularly affected by the construction crisis. Jacobs notes that the worst affected construction businesses were those that entered into fixed price contracts when there was a government construction stimulus. With little assets for creditors to recover, Jacobs is urging that payment terms be reconsidered.
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