Australian business insolvencies remained artificially suppressed during COVID through JobKeeper, loan payment deferrals, and temporary insolvency relief. When these supports ended, insolvencies surged as businesses that were fundamentally unviable but kept alive by support measures finally failed.

Understanding which sectors are most affected, what’s driving insolvencies, and what this means for the broader economy provides context for business planning and credit management.

The Numbers

Corporate insolvencies in 2024-2025 are running 30-40% above pre-COVID levels. Some of this represents catch-up from the artificially low 2020-2021 period. Some represents businesses that would have survived without COVID disruption but couldn’t recover afterward.

Small businesses account for the majority of insolvencies, as they always do. But the composition has shifted—more hospitality, retail, and construction businesses failing compared to typical patterns.

Personal insolvencies (bankruptcies) increased alongside corporate failures, often involving directors of failed small businesses who provided personal guarantees or exhausted personal resources trying to save their companies.

Hospitality and Retail Failures

Hospitality businesses that survived COVID through government support often couldn’t transition to post-COVID normal. Changed customer patterns, labor shortages, and increased costs made previously viable businesses unviable.

Some venues that were marginal before COVID and survived only through JobKeeper lacked viability once support ended. They’d been slowly failing for years, and COVID support just delayed the inevitable.

Other businesses were genuinely viable pre-COVID but couldn’t recover lost momentum. Regular customers found alternatives during lockdowns and didn’t return. Tourist-dependent venues struggled with slow international visitor recovery.

Retail followed similar patterns. Businesses that had been gradually losing ground to online competition survived COVID through support but couldn’t adapt quickly enough when support ended. The pandemic accelerated existing trends rather than creating entirely new problems.

Construction Sector Stress

Construction insolvencies surged due to fixed-price contracts signed before cost inflation hit. Builders committed to projects at 2020 prices, then faced 2022-2023 costs for materials and labor.

Some builders absorbed losses on current projects hoping to recover on future work. When losses accumulated across multiple projects, insolvency became inevitable.

Supply chain disruptions compounded problems. When materials weren’t available on time, projects delayed, holding costs accumulated, and cash flow deteriorated. Some builders failed not from unprofitability but from cash flow collapse.

Subcontractor failures created cascade effects. When subcontractors failed, main contractors faced delays and cost overruns trying to replace them. When main contractors failed, subcontractors lost payment for completed work.

The Zombie Company Problem

Some businesses survived COVID through support despite being fundamentally unviable. These “zombie companies” consumed resources and competed with viable businesses while contributing little economic value.

Support programs couldn’t perfectly distinguish viable businesses facing temporary COVID disruption from unviable businesses that should have exited pre-COVID. Some zombies got supported along with genuinely viable businesses.

When support ended, zombie companies failed relatively quickly. This is economically healthy—freeing up resources for more productive uses—but painful for owners, employees, creditors, and communities.

Debt Overhang

Businesses that borrowed heavily to survive COVID now service debt taken on during periods of zero revenue. If post-COVID trading doesn’t generate enough cash flow to service this debt plus normal operating costs, insolvency becomes likely.

Some businesses that would have been viable without COVID debt loads failed because they couldn’t service accumulated pandemic borrowing. This is tragic for well-run businesses caught in impossible situations.

Lenders have been relatively patient, but patience has limits. Banks that deferred payments or extended terms during COVID are now enforcing normal conditions. Businesses that can’t meet these conditions face insolvency.

Director Liability and Personal Guarantees

Directors who continued trading while insolvent to try to save their businesses now face potential personal liability. Insolvent trading laws hold directors accountable for debts incurred when they knew or should have known the company was insolvent.

Personal guarantees for business loans mean many directors face personal bankruptcy when their companies fail. This is particularly common in small business where lenders routinely require personal guarantees.

The emotional and financial toll on failed business owners is substantial. Many put everything into trying to save businesses, exhausted personal savings, borrowed from family, and still couldn’t avoid failure.

Creditor Impacts

Unsecured creditors—suppliers, contractors, landlords—often receive little or nothing when businesses fail. Secured creditors (banks) have priority, and by the time insolvency practitioners finish, little value remains for unsecured claims.

This creates cascade effects. When a business fails owing suppliers $100,000, those suppliers face their own cash flow pressures. If enough customers fail, suppliers can become insolvent themselves.

Trade credit management became more critical as insolvency rates rose. Suppliers that previously offered net-30 or net-60 terms now require deposits, shorter payment terms, or cash on delivery from customers they consider risky.

Employment Impacts

Failed businesses eliminate jobs, creating unemployment and underemployment. While Australia’s overall employment market remained strong through 2024-2025, pockets of higher unemployment exist in sectors and regions where business failures concentrated.

Employee entitlements (wages, annual leave, redundancy) are partly protected through the Fair Entitlements Guarantee, but this doesn’t fully compensate all employees for all losses when employers fail.

What Insolvency Looks Like

Most insolvencies involve voluntary administration where directors appoint an administrator to assess whether the business can be restructured or should be wound up. Administrators often recommend liquidation once they assess the business’s financial position.

Creditors’ voluntary liquidation is common for small businesses where directors recognize the business can’t continue and want orderly wind-down. This is less costly than court-initiated liquidation but still results in business closure.

Restructuring and survival happens in minority of cases. Where businesses have fundamentally sound operations but temporary cash flow or debt problems, administrators can sometimes negotiate with creditors to trade through difficulties.

Industry Restructuring

Higher failure rates in struggling sectors accelerate restructuring. Marginal operators exit, and stronger businesses gain market share. This is economically healthy long-term but disruptive short-term.

Hospitality and retail are seeing consolidation as failing independents are replaced by chains or simply close without replacement. This changes neighborhood character and reduces diversity but improves average business viability.

Construction sector shakeout removes builders that were undercapitalized or poorly managed. Surviving builders face less competition but also operate in market with reduced capacity and customer caution about builder reliability.

What Businesses Should Know

Monitor customer creditworthiness actively. Don’t assume customers who’ve been reliable for years will remain solvent. Economic conditions changed, and many businesses struggle even if they’re not showing obvious signs.

Protect yourself through deposits, progress payments, and credit limits. Don’t extend large credit to customers without confidence in their financial position.

If your business struggles, seek professional advice early. The longer you trade while insolvent, the worse director liability becomes and the less value remains for creditors.

Insolvency isn’t personal failure. Economic and policy changes outside your control affected many businesses. Don’t sacrifice personal financial security trying to save businesses that are beyond saving.

For businesses managing through difficult conditions and evaluating whether they’re on sustainable paths, objective assessment of viability is critical before problems become insurmountable.

Outlook

Insolvency rates will likely remain elevated for another 12-24 months as delayed failures work through the system. Eventually, rates should normalize as weak businesses exit and survivors strengthen.

Economic conditions—inflation, interest rates, consumer spending—will affect future insolvency trends. If economy weakens further, insolvencies could spike. If conditions improve, rates may decline faster than current trends suggest.

Policy responses to high insolvency rates are unlikely. Government supported businesses through COVID; post-COVID failures are considered market adjustment rather than crisis requiring intervention.

Australian business insolvency surge post-COVID support reflects both delayed failures that would have occurred earlier without intervention and genuine businesses that couldn’t adapt to post-pandemic conditions. The shakeout is painful but represents return to normal market conditions where unviable businesses fail rather than being artificially sustained indefinitely.