By late 2024, forecasts pointed to continued rises in insolvencies into the first half of 2025. So far in 2025, insolvencies have stabilised but remain elevated, particularly in the construction and hospitality sectors. While interest rates are expected to ease in the second half of 2025, ongoing business pressures suggest insolvency risks will persist into Financial Year (FY) 2026. In this insight, we discuss current economic conditions, the Australian Taxation Office (ATO) position and how this is likely to play into insolvency appointments over the next 12 months.
Economic Conditions
Global uncertainties, including United States (US) imposed tariffs, rising costs and geopolitical tensions continue to challenge businesses. In response, the Reserve Bank of Australia (RBA) has introduced two interest rate cuts, with further easing predicted. These, along with lower fuel costs, are expected to help ease insolvency pressures into FY 2026.
ATO Position
ATO enforcement has intensified since the end of COVID, driving up insolvencies. Small and Medium-Sized Enterprises (SME) often lacking strong cash reserves or lending access compared to large businesses, are especially vulnerable. As of early 2025, the ATO is owed an estimated $52 billion, of which $34 billion is from SMEs. Notably, 31% of businesses with tax debt defaults over $100,000 and 90+ days overdue have entered insolvency or closed in the past year.
Industry Insights
Construction and hospitality remain the most affected sectors, accounting for over 40% of all insolvencies. Construction alone represented 24% of national cases in May, driven by fixed-price contracts, rising costs, labour shortages, and a cooling property market. There is a widening gap between large established firms and small operators as government backed infrastructure projects remain strong but privately funded residential developments are facing records levels of abandonment. The industry’s fragmentation of small firms is likely to mean sustained insolvency pressures in FY 2026.
Hospitality businesses face similar pressures, including rising input costs, repeated minimum wage hikes, and weak CBD and tourism patronage. With limited cash buffers and high reliance on discretionary spending, many small operators are struggling amid the ongoing cost-of-living crisis.
Unless conditions improve, both sectors may see increased restructuring activity or further closures in FY 2026.
How can Charles & Co. help you?
Our Team with more than 50 years combined experience can help businesses and individuals in a range of challenging and distressed situations. We encourage anyone experiencing financial or operational distress to contact us to discuss your options.