Insolvency Activity Returning to Construction Industry?
The construction industry is considered by many to be one of the first indicators of an incoming wave of insolvencies. This is especially relevant at the moment because ATO enforcement plays a big role in protecting the health of the industry by weeding out poorly run companies, and the ATO have been taking a “cautious approach to compliance” to support struggling businesses through the pandemic.
The ATO is traditionally the largest initiator of wind-up actions against companies, normally accounting for more than half of the total. According to data published in the Australian Financial Review, there were 583 court wind-up actions economy-wide in the December quarter of 2019, a total that dropped to just 48 a year later. Among construction-related companies, the figure plummeted to just 10 from 119. This was largely due to government COVID protections extending the wind up notice period from 21 days to six months, and the minimum threshold for a wind up from $2,000 to $20,000. Insolvency numbers have picked up somewhat since these restrictions were lifted in January 2021, but remain well below historical levels.
Here at Dissolve we’ve noticed a sizeable increase in the number of queries for construction and construction related companies in 2022. We suspect this is because the majority of the deals done in this space are fixed price contracts and it has been well publicised that there have been significant increases in supply chain costs.
We are keeping a close eye on the Voluntary Administration of Probuild because it could well start a domino effect and lead to many more insolvencies for the construction industry.