Insolvency, administration numbers up, with construction dominating the figures

But there are warning signs creditors and consumers can look for if they suspect things aren't business as usual.

For the financial year to March 12, ASIC records show 5147 Australian companies entered external administration for the first time, compared to 4912 across the entire 2021-2022 financial year.

Australian Restructuring Insolvency and Turnaround Association CEO John Winter said up until March 2020, insolvencies had been in a long-term decline.

"That was largely driven by our low interest rates environment and, of course, we had 28 years of uninterrupted [economic] growth going into the start of COVID," he said.

When COVID-19 hit, a range of protections came into effect that halved insolvency numbers "overnight", Mr Winter said.

These included protections around commercial leases, stopping claims of insolvent trading and extensions on how long a company had to respond to creditor demands.

But since about March 2022, the Australian Tax Office has ramped up warnings and activity.

This, along with higher inflation and interest rates, had resulted in a surge of insolvencies, Mr Winter said.

While financial troubles can bubble away for some time before an insolvency occurs, there are some common warning signs a business is facing financial difficulties, Chamberlains Law Firm managing director Stipe Vuleta said.

Paying contractors or staff late and failing to pay taxes on time are among the signals, but the "social indicators" vary industry-to-industry, Mr Vuleta said.

"If you're looking at businesses that are very labour-heavy, retail for example, or food and beverage, you tend to start to see really obvious things that are reflected in lower staffing numbers, so dirty premises or not enough waiters at the restaurant - stuff like that as people are trying to trim costs," he said.

For larger businesses, warning signs of financial distress could be service lines being discontinued, motor vehicles being repossessed or an inactive website.

Days before Canberra company PBS Building entered administration in March the company's website shut down, hinting something was amiss.

Similarly when rumours of Pialligo Estate's financial trouble emerged later that month, its inactive website was one of the first signs it wasn't business as usual.

Mr Vuleta said an inactive website could be due to a dispute with a hosting provider or an unpaid bill to an IT provider. But he said it was just as likely a company's website could remain live when administration occurs.

"Similarly, we see a lot of businesses that might entirely collapse into liquidation and because they've prepaid their hosting, their website might just hang around in zombie mode for some time as well," he said.

Sudden changes in behaviour were often signs of an impending insolvency, Mr Winter said.

"If [builders] go from one day appearing on site and everything's going swimmingly to suddenly being hard to contact and bits of equipment disappearing off site, those are the behaviours you've got to start to look at," he said.

"If you're somebody who's supplying a cafe or a restaurant, which is obviously another area that we've seen some pretty big impacts in, if all of a sudden you're not being paid on time anymore you need to be asking questions, properly challenging them before you keep extending credit because you're likely not to get that money back."

ASIC has recorded 1447 first-time administrator or controller appointments in the construction industry for the financial year to March 12, compared to 1284 for the entire 2021-2022 financial year.

Construction industry businesses feature prominently in insolvency statistics and both experts said that trend is likely to continue.

"That's inherently because any type of property development carries with it a whole range of risks," Mr Winter said.

A shift towards fixed-price contracts means developers have passed on much of the risks to builders, Mr Winter said.

"Until we can get to a point where those construction businesses are able to, if not pass on the risk, at least share the cost risk, then they're going to continue to struggle," he said.

Mr Vuleta agreed and said he expected construction and retail insolvencies to continue dominating the numbers.

"My view at the moment, particularly the way the economy is going, is people need to take a more pessimistic view of all of their commercial relationships and assume that people are going to be, to some extent or another, experiencing some distress over the coming period," he said.

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