Construction failures lead company insolvency numbers up
Company insolvencies grew by 4.6 per cent last financial year, after having fallen steadily since 2016, according to new ASIC data. A significant increase in business failures in the construction sector caused the increase.Across Australia, 8105 companies entered external administration in the 2018/19 financial year, compared with 7747 the previous year.The big increases were in New South Wales, where company insolvency appointments were up 16 per cent last year, and Victoria, where they were up 12 per cent.Equifax says the big driver of these increases was the construction sector, which experienced an 18 per cent year-on-year increase in the number of companies closing down.Head of product and ratings services at Equifax, Brad Waters, said: "These results won't come as a surprise. We've observed lower activity levels across construction with margin erosion, increased risk and higher levels of creditor exposure."Walters said credit wind-ups represented half of all construction industry external administrations and court wind-ups represented a quarter.In addition to money owed to secured creditors, 30 per cent of construction industry external administrations owed more than A$500,000 to unsecured creditors.Walters said an increasing focus for Equifax clients when reviewing counterparty exposures was related party dependencies."External administrator reports reveal that 14 per cent of construction companies going into administration have more than 50 per cent of debt owed to related parties.Walters said there were some encouraging signs for the year ahead, with dwelling approvals growing again in December and a pick-up in new housing loan commitments."It's encouraging to see NAB's final monthly business survey for 2019 suggest that business conditions may have bottomed out," Walters said.