Business insolvency rates have risen sharply in both Australia and New Zealand over the past 18 months, following extended periods of artificially suppressed failures during COVID-19 government support programs. These increasing failures provide insight into economic health and sector-specific stress points.

Australian corporate insolvencies reached approximately 9,800 in the twelve months to June 2025, the highest level since 2012-2013 and well above the pre-pandemic average of around 7,500 annually. The increase isn’t evenly distributed across sectors—construction and hospitality account for disproportionate shares of failures.

New Zealand’s business liquidation numbers similarly increased, reaching around 2,400 in the year to June 2025 compared to roughly 1,800 pre-pandemic. The pattern mirrors Australia with construction particularly affected.

The construction sector’s distress reflects multiple converging factors. Fixed-price contracts signed during 2020-2021 when material costs were lower are now being executed with materials costing 20-30% more. Labor costs have increased substantially as immigration restrictions created worker shortages. Interest rate increases affect both project financing and developer demand for new projects. The result is builders completing jobs at losses, quickly exhausting working capital.

Several major construction companies have entered administration, creating ripple effects through subcontractor networks. When a major builder fails owing millions to subcontractors, those subcontractors face cash flow crises and potential failure themselves. This cascade effect amplifies the initial failure’s economic impact.

Hospitality sector failures reflect changed consumer behavior post-pandemic combined with rising costs. Commercial rent increased as landlords recovered from pandemic rent reductions. Labor costs rose dramatically—minimum wage increases combined with severe labor shortages pushed hospitality wages up 15-20% in many cases. Energy costs increased. But consumer spending patterns haven’t returned to pre-pandemic levels in all segments.

Retail insolvencies continue trends that preceded COVID. The structural shift toward online retail and away from physical stores creates ongoing stress for traditional retailers. Those that survived pandemic lockdowns now face inflation pressures, reduced consumer discretionary spending, and ongoing competition from online alternatives.

Professional services firms are seeing increased failures, which is less typical. Accounting, legal, and consulting firms usually have lower insolvency rates than other sectors due to lower capital requirements and more flexible cost structures. The current increase suggests demand softening in ways that affect even previously resilient sectors.

The lag between business stress and formal insolvency matters. Companies often struggle for 12-18 months before ultimately failing, using available credit, selling assets, and delaying payments to creditors. The insolvencies occurring now reflect stress that began building in 2023 or earlier.

Personal guarantees create broader economic impacts. Many small business directors provide personal guarantees for business debts. When businesses fail, directors face personal bankruptcy, losing homes and savings. This extends the economic damage beyond the business entity itself.

Unsecured creditors typically recover little in insolvencies. Analysis of insolvency outcomes shows average recovery for unsecured creditors around 5-10 cents on the dollar. This means business failures destroy substantial economic value as debts written off represent real economic losses for suppliers and service providers.

Employee entitlements in insolvencies receive some protection through government Fair Entitlements Guarantee schemes, but employees still face job loss and often substantial periods of unemployment while seeking new positions. The broader economic impact includes reduced consumer spending as affected workers cut back.

The phoenix company phenomenon—where failed businesses re-emerge under new corporate structures leaving debts behind—remains a problem in both countries. Directors close one company, leaving creditors unpaid, then start a new company doing the same business. Regulators are increasingly pursuing director bans for this behavior, but detection and enforcement remain challenging.

Insolvency practitioner capacity is being tested by increased volumes. The pool of licensed insolvency practitioners is limited, and the surge in insolvencies is creating capacity constraints. Some smaller regional insolvencies are experiencing delays in appointment of administrators due to practitioner availability.

The regulatory response has been mixed. Australia’s temporary insolvency safe harbor provisions expired, returning to normal insolvency rules. There’s ongoing debate about whether insolvency laws appropriately balance creditor protection against allowing business restructuring. New Zealand is considering insolvency law reforms to improve restructuring options.

Bank lending standards have tightened as insolvency rates rise, creating a feedback loop. Banks concerned about business failures reduce lending or require more security, making it harder for struggling businesses to access working capital, increasing likelihood of failure. This credit tightening affects viable businesses alongside troubled ones.

The economic signaling from rising insolvencies is important. Some business failures reflect normal creative destruction—inefficient businesses exiting, freeing resources for more productive uses. But widespread failures across sectors suggest broader economic stress rather than healthy business turnover.

Sector-specific insights are revealing. The fact that construction insolvencies are concentrated among larger builders rather than small tradies suggests the problem isn’t just general economic weakness but specific factors like fixed-price contract risk and project pipeline issues. Hospitality failures occurring despite seeming return to normal consumer behavior suggests changed underlying economics of the sector.

Looking ahead, insolvency rates will likely remain elevated through 2025-2026. Interest rates remaining high create ongoing pressure on indebted businesses. Consumer spending is soft, limiting revenue growth. Cost pressures from wages and other inputs continue. These factors suggest business failures will keep rising before eventually stabilizing.

The geographic distribution shows concentration in major cities where business density is highest, but regional areas are experiencing insolvencies in tourism, agriculture services, and construction. Regional business failures often have larger relative impacts on local communities given thinner economic diversity.

For policymakers, rising insolvencies create pressure to provide support but also raise questions about moral hazard. Bailing out failing businesses creates expectation of ongoing support and prevents necessary market discipline. Allowing failures to proceed causes economic pain and job losses. Neither option is clearly superior.

For operating businesses, the lesson is to carefully assess counterparty risk—will suppliers, customers, and service providers remain solvent? Supply chain diversification and credit insurance become more important when insolvency rates are elevated. Cash flow management and working capital conservation become critical.

The insolvency data confirms that the economic environment remains challenging despite surface indicators like employment remaining relatively strong. Business stress is real and widespread, even if it hasn’t yet translated to widespread job losses or recession. Whether this stabilizes or deteriorates further depends on factors including interest rate trajectories, consumer confidence, and external economic conditions.