Insolvencies hit new highs as global and domestic pressures collide

Australia’s insolvency crisis shows no signs of slowing, with new data from Alares and CreditorWatch confirming that businesses – particularly small and mid-sized enterprises – are facing sustained financial pressure from both domestic and global forces.

According to Alares Credit Risk Insights, March 2025 set a new record for monthly insolvency activity, surpassing the previous peak in May 2023. Insolvencies are now tracking 70 per cent above historical levels, with Small Business Restructuring (SBR) appointments also continuing to rise. “Nearly one-in-four insolvency appointments are now SBRs, showing that more eligible small businesses are taking proactive steps to regain control and overcome pressures like rising costs, tax debts and compliance demands,” says Chris Baskerville, Jirsch Sutherland Partner and a Small Business Restructuring Practitioner.

However, despite these early interventions, the broader outlook remains concerning. CreditorWatch’s latest Business Risk Index reveals that early signs of financial stress are intensifying. March saw a 42 per cent year-on-year surge in B2B invoice defaults – a key indicator of insolvency – while February insolvencies were already 17 per cent higher than the same time last year.

“This mounting pressure is being felt most acutely in discretionary sectors,” says Baskerville. “A record 9.4 per cent of food and beverage businesses closed their doors over the past year – almost double the national average. Rising rents, wages and operating costs, coupled with more cautious consumer spending, are really squeezing already tight margins. My colleagues and I are definitely seeing an uptick in inquiries and appointments across these sectors as business owners look for a way forward.”

CreditorWatch Chief Economist Ivan Colhoun warns that the pressure is unlikely to ease soon. “These uncertainties cause either consumers or businesses to delay purchases, hiring or investment decisions; the impact is a slowdown in economic activity, which will pressure weaker businesses,” he said.

Global trade turmoil adds to the strain

Compounding domestic pressures is renewed global volatility. Shifting U.S. trade and tariff policies have continued to fuel financial market uncertainty, with abrupt changes triggering turbulence and weakening the Australian dollar. The fallout has left many Australian businesses – particularly those with international supply chains – grappling with rising costs and currency-driven uncertainty. While some importers may benefit from reduced tariffs, the broader effect has been diminished confidence and increased difficulty in long-term planning.

CreditorWatch CEO Patrick Coghlan called it “a very uncertain time for businesses and consumers”, noting that sectors like construction and hospitality remain highly exposed. Around 30,000 businesses now also owe the ATO more than $100,000, and the number entering tax payment plans has fallen significantly since October 2024 – a trend historically tied to rising insolvencies.

The COVID catch-up continues

Australia’s “COVID catch-up” is also still playing out. Alares previously estimated that around 4,500 businesses delayed administration due to pandemic-era support. So far in 2025, around 1,100 of those businesses have collapsed, suggesting more failures are still to come.

ATO court actions have jumped nearly 40 per cent year-on-year, and more than 30,000 have now been listed for tax debt, with that number continuing to rise. After a long period of forbearance, these figures make it clear: the ATO is laser-focused on active enforcement. Interestingly, Alares notes that court recoveries by the big four banks have declined over the same period.

Where risk Is rising

Business failure risk isn’t evenly distributed across the country, says CreditorWatch. Western Sydney stands out as a key hotspot, with the Bringelly-Green Valley area forecast to record a 7.9 per cent business closure rate over the next 12 months. In contrast, Norwood-Payneham-St Peters in inner Adelaide is expected to remain more stable, with a forecast rate of 4.5 per cent. Among capital cities, Adelaide’s CBD has the lowest projected failure rate at 5.2 per cent, while Sydney sits at the top with 6.3 per cent.

Across the board, failure rates have returned to – or exceeded – pre-COVID levels, particularly in construction, administration, arts, recreation, and retail.

What businesses and advisers need to do

For directors and their trusted advisers such as accountants and lawyers, this climate demands early action, says Baskerville. “Waiting until a crisis hits is no longer viable. With insolvency levels at record highs and both domestic and global pressures continuing, the businesses that endure will be those that move proactively and seek expert advice before issues escalate,” he says.