An increasing number of companies have gone under this year, owing millions, but experts have warned that a staff shortage will cause a “flood” of collapses.
Background – staff shortage crisis
Experts said Australia’s staff shortage crisis contributes to company collapses in the construction, hospitality, and finance industries, warning that an “insolvency flood” is just beginning.
Insolvency Australia director Gareth Gammon said the skills shortage would be one of the ongoing triggers of bankruptcy and insolvency in the coming months, with its specialists already witnessing a spike in companies collapsing.
It seems we are uncharted waters; staff shortages are endemic across multiple industries, and the unemployment rate is at a low of 3.5%, he enforced.
It is one of the biggest challenges businesses face, small and medium enterprises.
From start-ups to long-established companies, the number of companies falling across Australia began to pile up in 2022.
Construction industry staff shortage
It is no secret that the Australian construction industry has experienced colossal upheaval, experiencing a spate of collapses this year.
Earlier in the year, two leading Australian construction companies, Gold Coast-based Condev and industry giant Probuild, entered liquidation, while countless smaller firms have also bankrupted.
Meanwhile, start-ups serving the hospitality and retail sector have also failed to survive in recent months.
Food delivery staff shortage
A Victorian food delivery company called Delivr positioned itself as a rival to Deliveroo, and UberEats appointed liquidators several weeks ago.
At its optimum, Delivr was employing 200 drivers but reportedly struggling in its last months, offering a $100 sign-on bonus in June to encourage more drivers to join.
Then there was grocery delivery company Send, which had spent $11 million in eight months to stay afloat but collapsed in May.
Finance sector staff shortage
In the finance sector, Australia’s inaugural neobank came into existence in 2017. But unfortunately, Volt Bank also collapsed, using its 6000 customers to withdraw their money urgently.
A tightening cash flow, declining profits, and staff shortages harm businesses.
It creates a domino effect with the staff shortages resulting in customer service loss and ultimately reduced revenue.
The drastic staff shortages in hospitality and tourism, in particular, will also incur more distressing circumstances in the sector in the coming months.
Australian states hardest hit
The harsh conditions also affect different states across Australia, with Queensland and Victoria particularly hit hard by the construction crisis.
But the head of Auxilium Partners, Bob Jacobs, said the “insolvency flood” across all industries has just started in Western Australia, with the number increasing each week.
Although it wasn’t just staff shortages contributing to companies’ demise, the Australian Taxation Office demanding payment of debts is also an impacting factor.
He also stated another reason is that the ATO issued Director Penalty Notices in May this year, meaning that directors had to act. With most opting for liquidation or voluntary administration, as well as short-term factors like lack of stock in the supply chain also having an impact, he stated.
“I think the initial impact will be corporate insolvencies, while personal insolvencies will also rise, but probably a year or two behind the rise in corporate filings,” Mr Jacobs said.
Construction woes
But there is one sector leading the deluge of midyears insolvencies, Mr Jacobs noted, and that was builders who entered fixed price contracts during the time of the government construction stimulus.
“Unfortunately, (generally) there are little to no assets for insolvency practitioners to recover for creditors,” he said.
He suggests tradespeople and suppliers to the building industry reconsider their payment terms. Creditors should not incur the same treatment as a bank, and payment on delivery prevents ripple effect insolvencies.
The number of collapses in the construction sector continues to rise. It includes Dyldam Developments, Inside Out Construction, Home Innovation Builders, New Sensation Homes, ABG Group, Next, ABD Group, Pindan, and Pivotal Homes.
Others that have also gone under include Solido Builders, Waterford Homes, Affordable Modular Homes and Statement Builders.
A franchisee of a national construction firm, Hotondo Homes Horsham, imploded in July. The collapse impacted 11 homeowners and left $1.2 million in outstanding debt.
Horsham is the second Hotondo Homes franchisee to collapse this year. Its Hobart branch collapsed in January while owing $1.3 million to creditors, according to a report from liquidator Revive Financial.
Engineering vacancies being at a record high will also contribute to the construction industry woes, added Mr Calabretta.
What are the steps to fix the issue?
Labor frontbencher Tanya Plibersek says Australia needs to look beyond a quick fix it has used to “cover-up” a significant issue.
The proposal will be canvassed next month at the Albanese government’s jobs summit, bringing together approximately 100 representatives from the public sector, business groups, and the union movement.
Ms Plibersek said Australia should consider boosting its intake of skilled migrants “in the short term”.
However, skilled workers had been in short supply even before the Covid-19 pandemic and the associated border closures.
Nationals MP Barnaby Joyce offered his support for the proposal, with a few caveats.
Mr Joyce also cautioned against union involvement in lifting the skilled migrant cap.
Immigration Minister Andrew Giles said the government would canvass a wide range of issues relating to migration before the jobs summit.
When asked about the matter, Mr Giles didn’t rule out the creation of a dedicated visa category to encourage skilled foreign workers to settle in regional Australia.
Labour shortages appear to be a strong focus of the jobs summit, with Australia’s unemployment rate at a very low 3.5 per cent and many industries struggling to find staff.
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