Over 11,000 companies entered external administration for the first time in 2023-24, a 39% increase on the prior year. Construction accounted for 27% of all failures. Accommodation and food services made up 15%. Together with other services at 9%, those three industries represented more than half of every business that went under.
The first half of 2024-25 was worse again, with insolvencies up 47% compared to the same period in 2023. Construction insolvencies hit 2,636 in the year to March 2025, a further 23% increase. Hospitality rose 57% in the same window.
But the real story isn't simply that businesses are failing. It's a market restructure happening in plain sight. One in three businesses with significant ATO debt didn't survive the year. The ATO is issuing Director Penalty Notices at three times the rate it was two years ago. And a new wave of pressure arrives in July when Payday Super removes the quarterly cash buffer that many struggling businesses have been leaning on.
This is a data-driven breakdown of which industries are being hit hardest, why, and what surviving businesses need to do to protect themselves.
ASIC's insolvency data tells a story of rapid escalation since 2021, followed by early signs of a possible plateau.
In 2022-23, external administrations were already climbing. By 2023-24, more than 11,000 companies entered external administration for the first time, a 39% year-on-year increase. While that number is slightly higher than the prior peaks seen in 2011-12 and 2012-13, there are now nearly 3.4 million registered companies in Australia compared to around two million back then. The current ratio of companies entering external administration (0.33%) is still below the 2012-13 level of 0.53%.
Context matters, but so does trajectory.
For Q1 of 2025-26 (July to September 2025), 3,556 companies entered external administration. That's down 2.1% from the 3,633 recorded for the same period in 2024-25. Early signs of stabilisation, though analysts warn payday super and ongoing ATO enforcement could reverse the dip in the second half of the financial year.
One structural shift is significant: small business restructuring has exploded. Restructuring appointments grew over 200% in 2023-24 compared to 2022-23 and now represent approximately 22% of all corporate insolvency appointments. Projections suggest approximately 3,000 restructuring appointments for full-year 2024-25, up from just 448 in 2022-23. More businesses are choosing to restructure rather than liquidate, and that's a meaningful change in how financial distress plays out.
Construction has been the dominant insolvency sector for three consecutive years and shows no signs of relinquishing that position.
In the 12 months to March 2025, 2,636 construction companies became insolvent for the first time, a 23% increase from the year prior. In financial year terms, nearly 3,000 building companies went under in 2023-24 alone, about 27% of all company failures nationally. That's an unprecedented share for a single industry.
The causes are well documented but worth restating because they haven't been resolved.
Fixed-price contracts signed during 2020-22 locked in prices that were obliterated by subsequent cost escalation. Construction costs have risen by 40% over the past five years, while residential build times have extended by up to 80% according to the Productivity Commission. A builder who signed a $450,000 fixed-price contract in 2021 might have needed $630,000 to actually deliver the build. That gap is what's driving the insolvency numbers.
Labour shortages compound the problem. Skilled trades remain in short supply, pushing wage costs higher while extending project timelines. Every extra week on a build site is another week of holding costs, insurance, and supervision that wasn't in the original quote.
The legacy debt problem is also unresolved. Many construction businesses that survived the worst of the fixed-price crunch did so by accumulating ATO debt, deferring super payments, or stretching supplier terms beyond breaking point. Those debts are now being called in.
Notable collapses during this period include Porter Davis Homes (approximately 1,700 homes in progress at the time of liquidation), Lloyd Group (59 projects worth over $350 million affected), and hundreds of smaller residential and commercial builders across every state.
The accommodation and food services industry saw insolvencies rise by 57% in the 12 months to March 2025, climbing from 1,168 to 1,837 businesses entering external administration. That makes it the second-largest contributor to the insolvency wave.
The dynamic is different from construction. Hospitality businesses generally didn't have fixed-price contract exposure. Their problem is the collision of three forces that arrived simultaneously.
First, the ATO resumed normal debt collection posture after years of pandemic-era leniency. Many hospitality businesses accumulated substantial tax debts during 2020-22 when the ATO deliberately softened its approach. Those debts are now being actively pursued, with Director Penalty Notices being issued at record rates.
Second, wage increases have been significant. Award wage increases, the super guarantee rising to 12%, and difficulty attracting staff without paying above-award rates have all pushed labour costs higher. For an industry where labour is typically 30% to 40% of revenue, even modest percentage increases translate to meaningful dollar amounts. You can see the real cost difference using our employee cost calculator.
Third, consumer spending has been selective. While overall household consumption recovered through 2025, hospitality spending is discretionary. When households feel cost-of-living pressure (higher mortgage repayments, higher utilities, higher insurance), eating out and accommodation are among the first cuts.
The businesses failing in hospitality are disproportionately those that entered the post-COVID period with legacy debt and have been unable to grow revenue fast enough to service that debt while absorbing higher wages and input costs.
Other services (which includes a broad range from hairdressing to car repair to funeral services) represented approximately 9% of all external administrations in 2023-24.
Retail has been under sustained pressure, though the numbers are less extreme than construction or hospitality. The shift to online, margin compression from supplier cost increases, and the same consumer spending selectivity affecting hospitality all contribute.
Professional services and technology have been more resilient, though not immune. These sectors benefit from higher margins, less asset intensity, and more flexible cost structures.
Healthcare and education remain the most resilient sectors, supported by structural demand that is less sensitive to economic cycles.
New South Wales and Victoria consistently record the highest total company insolvencies across all industries. That's partly a function of having the largest business populations, but the intensity has varied.
Victoria was among the hardest hit states during the construction wave. In the 12 months to June 2023, 619 Victorian construction companies collapsed, a 73.9% jump from the prior year. NSW saw 981 construction insolvencies in the same period, a 91% increase.
Regional versus metro patterns are emerging. Metro businesses have more diversified customer bases and generally better access to professional advisory services. Regional businesses, particularly in construction and hospitality, face the same cost pressures but with thinner local markets and fewer options for restructuring support.
Queensland and Western Australia have seen construction insolvency rates climb but from a lower base, reflecting their different housing market dynamics and the relative strength of the resources-linked economy.
The insolvency wave cannot be understood without looking at what the ATO is doing.
The ATO's total debt book has surged to over $105 billion, the highest on record. Of that, $46.4 billion is considered collectible, nearly double what it was in 2019. Small business makes up the majority.
In 2024-25, the ATO issued 84,529 Director Penalty Notices to individual directors in respect of liabilities worth $5.5 billion. That's a 136% increase from the 26,702 DPNs issued in 2023-24. For a detailed explanation of how DPNs work and how to protect yourself, see our full guide: Director Penalties in Australia: What the ATO Can and Will Do to You Personally.
The ATO has also increased its use of Departure Prohibition Orders, with 21 DPOs issued since July 2025, more than the total issued in the entire prior financial year.
From 1 July 2025, the general interest charge on unpaid ATO debt is no longer tax-deductible. This means a business carrying $100,000 in ATO debt at the current GIC rate of approximately 11% is now paying the full $11,000 per year in non-deductible interest. Previously, the tax deduction effectively reduced that cost to approximately $8,250. That's a 33% increase in the effective cost of owing the ATO money.
The pattern is clear: the ATO extended leniency during COVID, businesses accumulated debt during that period, and the ATO is now collecting aggressively. Businesses that cannot service their accumulated debt are being pushed into administration, either voluntarily or through the DPN and statutory demand pathway.
CreditorWatch data from December 2024 reported that 33.6% of private businesses with ATO tax debt defaults exceeding $100,000 that were more than 90 days overdue had either become insolvent or voluntarily closed during the past year. One in three. That's the survival rate for businesses with significant ATO debt.
Not sure where your own ATO position stands? Use our ATO compliance health check to identify any gaps before enforcement catches up with you.
ASIC released its half-yearly Reports of Misconduct data for H2 2025 on 25 February 2026. The numbers add another dimension to the insolvency picture.
ASIC received 9,686 reports of misconduct during the period, raising 13,036 individual issues. That's a 28% increase compared to the first half of 2025.
Corporate governance matters accounted for 40% of all issues raised, jumping from 3,819 to 5,217 issues, a 37% increase. Within that category, 35% related to governance concerns within companies, 19% were failures to provide records to liquidators, 11% were fraud allegations, and 9% were insolvency issues.
The "failures to provide records to liquidators" category is telling. When businesses fail and the directors cannot or will not provide proper financial records, it typically indicates either poor governance practices throughout the business's life or deliberate concealment. Either way, it connects the insolvency wave to deeper governance problems that existed long before the external administration was triggered.
ASIC secured a record $349.8 million in civil penalties during the same period, launched 123 investigations, filed 23 new criminal proceedings, and contributed to 17 criminal convictions. The enforcement machine is running at full capacity alongside the insolvency wave.
One of the most significant developments in Australian insolvency over the past three years has been the rapid adoption of Small Business Restructuring.
SBR allows eligible businesses (those with liabilities under $1 million) to continue trading while restructuring their debts under a formal plan. It's faster and cheaper than voluntary administration, preserves the business as a going concern, and generally produces better returns for creditors than liquidation.
Restructuring appointments have grown exponentially: from 448 in 2022-23, to approximately 1,425 in 2023-24, with projections of approximately 3,000 for 2024-25. SBR now represents roughly 22% of all corporate insolvency appointments.
The ATO's aggressive DPN strategy is directly fuelling this growth. Directors who receive a non-lockdown DPN have 21 days to respond, and appointing a restructuring practitioner is one of the four available options (along with paying the debt, entering a payment plan, or winding up). For many directors, SBR represents the best path between full payment (which they can't afford) and liquidation (which destroys the business entirely).
If your business is healthy, the insolvency wave is still your problem. Here's why.
Your supply chain is at risk. If one in three construction businesses with significant ATO debt doesn't survive the year, and you rely on subcontractors or suppliers in that sector, you need to know which of your suppliers might be next. A key supplier going into administration mid-project doesn't just inconvenience you. It can derail your delivery timeline, trigger contractual penalties, and force you to find replacement suppliers at short notice and higher cost.
Your debtors are at risk. If your customers are in industries with elevated insolvency rates, the money they owe you is at risk. The time to assess debtor quality is before they stop paying, not after. Run credit checks. Monitor payment patterns. If a customer who used to pay in 14 days starts taking 30, then 45, then 60, that's not just a cash flow inconvenience. It might be a warning that they're heading toward administration.
Your competitive landscape is shifting. Business failures create opportunities for survivors. When a competitor goes under, their customers need to go somewhere. Their good staff need new employers. Their supplier relationships become available. Businesses that are financially stable during a period of elevated insolvency are positioned to grow through acquisition of customers and talent at a fraction of the normal cost.
Review your supplier exposure. Identify any supplier where you'd face significant disruption if they ceased trading. For those suppliers, check their ASIC status, monitor CreditorWatch or similar services, and consider building alternative supplier relationships as insurance.
Tighten your debtor management. Shorten payment terms where possible. Follow up on overdue invoices immediately, not at the end of the month. Use our payment reminder email drafter to automate follow-up and recover cash faster. Consider credit insurance for your largest debtor exposures.
Stress-test your own position. Run a 13-week cash flow forecast that assumes one or two of your largest customers slow their payments by 30 days. If that scenario breaks your cash flow, you need to build buffer now while conditions allow it.
Check your own ATO position. If you have any outstanding lodgements or unpaid obligations, address them proactively. The ATO's current enforcement posture means that debts which were tolerated two years ago are now triggering DPNs. Use our BAS lodgement deadline calculator to make sure nothing is overdue, and our simplified BAS calculator to estimate your upcoming obligations.
The Q1 2025-26 data showing a 2.1% decline in external administrations compared to the same quarter last year offers cautious optimism. It may indicate that the worst of the post-COVID debt collection wave is passing and that insolvency rates are stabilising.
But three factors suggest the plateau might be temporary.
Payday Super takes effect on 1 July 2026. Businesses that have been relying on the quarterly super float as an informal working capital buffer will lose that buffer overnight. For businesses already under cash pressure, this is one more demand on limited cash. Expect an uptick in insolvencies in Q1 and Q2 of 2026-27, particularly in construction and hospitality where cash margins are thinnest.
The RBA rate cycle is adding cost pressure across every industry. With the cash rate at 4.10% and another hike expected in May, businesses with variable rate debt are paying materially more than they were 12 months ago. The compound effect (higher debt servicing, higher wages, higher utilities, slower customer payments) continues to squeeze margins.
The ATO has not signalled any softening of its enforcement posture. The Tax Ombudsman has announced a formal review of Director Penalty Notices in response to the 136% surge, but that review is about process fairness, not about reducing enforcement. The underlying message from the ATO remains: pay what you owe, lodge on time, or face personal liability.
For surviving businesses, the opportunity is significant. Every competitor that exits the market leaves behind customers, contracts, and staff. The businesses that are well-managed, financially stable, and proactive about their compliance position will be best placed to absorb that opportunity.
How many Australian businesses went insolvent in 2024-25?
ASIC data shows that more than 11,000 companies entered external administration for the first time in 2023-24, a 39% increase year on year. The first half of 2024-25 (July to December 2024) saw a further 47% increase compared to the same period in 2023. Q1 of 2025-26 showed a slight decline of 2.1%, potentially signalling a plateau.
Which industries have the highest insolvency rates in Australia?
Construction dominates with approximately 27% of all failures nationally, followed by accommodation and food services at approximately 15%, and other services at approximately 9%. Together these three industries represent more than half of all company insolvencies in Australia. Construction insolvencies hit 2,636 in the year to March 2025 (up 23%), while hospitality insolvencies rose 57% in the same period.
What is Small Business Restructuring and how does it work?
Small Business Restructuring (SBR) is a process that allows eligible companies (those with liabilities under $1 million) to continue trading while restructuring their debts. It's faster and cheaper than voluntary administration and generally produces better outcomes for both the business and its creditors. A restructuring practitioner is appointed to develop a plan that creditors vote on. SBR appointments have grown from 448 in 2022-23 to approximately 3,000 projected for 2024-25, and now represent about 22% of all corporate insolvency appointments.
What should I do if one of my suppliers goes into administration?
First, understand your contractual position. Check whether your contracts include provisions for supplier insolvency, including rights to terminate, retain, or recover goods. Second, identify alternative suppliers immediately, even before you need them. Third, if the supplier owes you money or holds your property (materials, equipment, work in progress), register your interest with the appointed administrator promptly. Fourth, assess the impact on your own delivery timelines and communicate proactively with your customers if delays are likely.
How does the ATO's enforcement activity connect to the insolvency wave?
The ATO issued 84,529 Director Penalty Notices in 2024-25, a 136% increase from the prior year, targeting liabilities of $5.5 billion. Many of these DPNs are directed at small business directors with accumulated PAYG withholding and superannuation debts. When a director receives a DPN and cannot pay or enter a payment plan within 21 days, the typical outcome is either voluntary administration or winding up the company. The ATO's enforcement pipeline is directly feeding the insolvency statistics, particularly for businesses that accumulated tax debt during the COVID-era leniency period.
What happens when a construction company goes insolvent mid-project?
The appointed administrator or liquidator assesses the company's assets and liabilities. For residential projects, state government guarantee schemes may cover some costs (subject to limits and eligibility). For commercial projects, the client typically needs to engage a new builder to complete the work, often at significantly higher cost due to the need to remediate, requote, and rebuild relationships with subcontractors. Insurance (including Home Building Compensation in NSW) may cover some losses, but coverage limits and exclusions mean clients frequently face out-of-pocket costs.
Will insolvency rates go down in 2026?
The Q1 2025-26 data shows a slight 2.1% decline, which may indicate stabilisation. However, Payday Super (starting July 2026), continued RBA rate increases, and ongoing ATO enforcement all create conditions for another wave of failures, particularly in construction and hospitality. Most industry analysts expect insolvency rates to remain elevated through 2026-27 before gradually moderating.
Scale Suite delivers embedded finance and human resource services for ambitious Australian businesses. Our Sydney-based team integrates with your daily operations through a shared platform, working like part of your internal staff but with senior-level expertise. From complete bookkeeping to strategic CFO insights, we deliver better outcomes than a single hire, without the recruitment risk, training time, or full-time salary commitment.
If you're concerned about your own compliance position or want to stress-test your cash flow against supplier or debtor disruption, drop the team a message or book a free 30-minute call.
We review and check articles periodically. At time of writing, all data and sources were current and accurate. ASIC insolvency statistics reflect published data through Q1 2025-26. ATO enforcement figures are from the ATO Annual Report 2024-25 and public statements by ATO officials. ASIC misconduct data is from Media Release 26-033MR dated 25 February 2026. This article is general information only and does not constitute financial, legal, or insolvency advice.
Sources:
ASIC Annual Insolvency Data 2023-24; ASIC Insolvency Statistics Q1 2025-26; ASIC Media Release 26-033MR (25 February 2026); Accounting Times FY25 insolvency reporting; Murrays Legal January 2026 analysis; ATO Annual Report 2024-25; ATO Tax Gap November 2025; CreditorWatch Business Risk Index December 2024; AFSA State of Personal Insolvency 2024-25; SmartCompany DPN reporting September/December 2025; Bartier Perry ATO enforcement analysis 2025; Productivity Commission Creating a More Dynamic and Resilient Economy (December 2025).
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