Construction, retail and transport sectors most vulnerable to company collapses

Companies in the construction, transport and retail industries are continuing to collapse due to the withdrawal of stimulus funds and fierce competition between businesses continuing to drop margins and discount.

New figures from the Australian Securities and Investments Commission reveal the number of companies going in to administration fell by 33% in January to 473. This is a 9% decline from January last year, with the drop due to courts being closed in January, along with many administrators shut down for the holiday season.

Additionally, while the Northern Territory only recorded one company entering external administration in January, New South Wales has once again taken the top spot with 204 appointments.

This is just under double the next highest figure, with Victoria at just 106 appointments. Queensland followed with 92 appointments, then South Australia and Western Australia at 25 and 32 respectively.

The Australian Capital Territory and Tasmania recorded seven and six appointments respectively. Bruce Gleeson, principal at Jones Partners, says companies in the construction and retail industries have been affected the most.

“Over the recent past what you will see with insolvency rates, is that a large number of them have been building and construction-related. This is not unusual given the fact we’ve had some difficulties across a range of commercial and residential projects. Housing companies going under has a ripple effect to contractors and smaller companies.”

“A number of companies involved in commercial fit-out or construction have collapsed because of the tightened finance market. Just like any other company, they thought they were going to get a higher level of work, and didn’t, leading to a higher fall-over rate in that industry than the norm.”

Gleeson also says that over the past year, many companies have failed to enter the market once the Government’s stimulus funds have begun to dry up.

Additionally, he says the discretionary retail industry will continue to suffer as small, independent stores struggle to compete with the bigger chains.

“Discretionary retail is struggling, and by that I mean the little clothing or shoe store not parading themselves in a major shopping centre. They are burdened with a high level of fixed costs, and if there is any fall in patronage they suffer quite quickly and it’s hard to recover from that.”

“Additionally, I think you’re going to see a continuation of these businesses shut down, because for many of the bigger guys it’s a discounting program 365 days of the year. I would argue these smaller retailers can’t compete with that activity.”

Andrew Needham, partner at HLB Mann Judd, agrees and says the majority of these construction appointments have been for companies involved in commercial or industrial properties.

“It’s always hard to say what’s going to happen in the future, but I think it’s probably right to say that we’ll see more. There are quite a few properties I believe banks in particular are trying to nurse through at the moment.”