Elevated corporate insolvencies set to continue

We expect elevated numbers of corporate insolvencies and challenging business conditions to continue in 2025, due to inflationary pressures, high energy costs, and poor consumer sentiment.

The slowing economy of Australia’s largest trading partner, China, combined with heightened geopolitical risks, and new measures announced and potentially to be announced by the Trump administration, will likely threaten those exposed to foreign markets and trade dynamics. These factors, together with the approaching Federal Election, will pose uncertainty to Australian businesses in already challenging times.

We expect to see additional pressure being placed on businesses by the ATO, with their corporate plan 2024-25 setting out strengthening of debt collection as a key focus area, particularly in respect to the reported circa $50 billion in debt currently owed. In addition, the Federal Government has reported that, subject to the passage of legislation, from 1 July 2025 businesses will no longer be able to claim interest paid on overdue ATO debts as a tax-deductible expense.

For calendar year 2024, ASIC’s insolvency data recorded a record number of insolvencies at 13,451, with the construction and hospitality sectors accounting for 42% of all appointments. In 2025, we expect this trend to continue and the sectors impacted to widen. Economic pressures will continue to squeeze corporate margins, resulting in insolvency risk to unprepared and overleveraged businesses in the year ahead.

Insolvency rates will continue at elevated levels, with reductions in interest rates and easing of inflation the likely major catalysts to any economic recovery. This could reduce input and financing costs for businesses, improve consumer sentiment, as well as broader economic investment.

Both major catalysts are predicted to be a slow grind in 2025. The prevailing low AUD exchange will assist exporters and further erode margins of importers. There remains a wide range of capital providers interested in distressed companies. Successful outcomes are often realised through a formal restructuring process by the introduction of new capital providers.