Dreaded 'insolvency tsunami' arrives, construction and hospitality hit hard

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A feared “insolvency tsunami” has well and truly hit Australia, according to one of the world’s largest credit agencies, and construction and hospitality businesses are at risk of folding faster than most.

Insolvencies have reached their highest levels since 2015, Equifax said, up 41 per cent from the same time last year and a massive 145.7 per cent since 2022.

Equifax’s Scott Mason said the trend raised serious questions about the survivability of many businesses – particularly SMEs and sole traders in construction and hospitality.

Those businesses are “significantly more likely” to be in mortgage stress, Mason said.

According to Equifax, sole traders in construction are 60 per cent more likely to be in early mortgage arrears versus the average consumer, and SMEs 30 per cent more likely.

Similarly, sole traders in hospitality are 75 per cent more likely to be in mortgage arrears.

“Across the board, many Australian consumers are struggling, with data from our consumer bureau showing that early-stage mortgage arrears are up 30 per cent in the last quarter compared to two years ago,” Mason said.

Equifax data found construction sole traders and SMEs in different regions across Australia have varying levels of stress.

Sole traders in Western Australia and South Australia are twice as likely to be in early mortgage arrears, Mason said, while those in Victoria are 44 per cent more likely.

“These business owners are having to make some extremely difficult choices around whether to prioritise paying their business or personal expenses,” Mason said.

“As a result, their mortgage repayments are starting to lapse.”

Additionally, Days Beyond Terms (DBT) – the average time taken to pay back dues – has increased year-on-year, bringing the average DBT to 6.5 days.

In further signs the construction industry is under pressure, Equifax said those in the trade paid their dues on average 10.2 days beyond terms.