Australia is suffering its worst wave of corporate insolvencies in a decade as higher interest rates slow the economy, with a range of household names already going under.

The likes of Godfreys and Colette by Colette Hayman have already become casualties in the retail sector, while major builders Porter Davis and ProBuild are notable construction failures.

In hospitality, high-profile restaurants and bars have shuttered as owners complain about rising costs and consumers spending less money when eating out and drinking.

University of NSW associate professor Evgenia Dechter pointed to figures from the corporate regulator ASIC showing company administrations hit a decade-high 10,497 in 2023-24.

That’s up significantly from 7942 in the prior year and surpasses the past two years combined.

“The present economic climate is characterised by low consumer confidence and low demand, which have a negative impact on business profitability,” Dechter said.

“High materials costs and high interest rates, which have raised the costs associated with debt servicing, further contribute to the increase in insolvencies.”

Source: UNSW, ASIC

Attention is turning to which businesses might be next to collapse as economists predict the economy will slow further over the second half of 2024.

In some cases, including The Body Shop’s UK parent, businesses have already put the future of their Australian stores in doubt.

Construction businesses hit the wall

The retail, construction and hospitality industries have copped the brunt of corporate pain in the past year, with ASIC data showing that insolvencies have spiked across all three sectors.

UNSW professor Richard Holden said a key challenge for construction companies in particular was that many contracts were negotiated on a fixed-price basis, meaning that when costs went up builders could not easily adjust their prices.

“That has been a fundamental driver of a lot of these bankruptcies – if you’re forced to complete the contract and can’t renegotiate it, you can lose a lot of money,” he said.

“That pushes a lot of people to the wall.”

Making matters worse, construction companies have also suffered significant shortages of essential materials, which has only pushed up costs further.

“Anyone who’s renting has had a big rent increase, and they’re already paying more for everything else because of this high underlying inflation, and there’s less housing supply available because of how inflation has hit the construction sector,” Holden said.

“That pushes prices up and creates a knock-on effect for a lot of consumers.”

Source: UNSW, Westpac, ASIC, Melbourne Institute

Hospitality struggles

There have also been 1576 corporate insolvencies in hospitality-related sectors in the past 12 months, which is up significantly from 1114 in the prior financial year (2022-23).

Holden said that businesses exposed to discretionary spending were finding it particularly difficult, with households pulling back to deal with cost-of-living pressures.

Hospitality operators also face higher operational costs at the same time, Dechter said, creating a toxic mix for business owners.

“These factors, compounded by the increased cost of servicing debt, have resulted in declining sales and diminished profitability within these industries,” Dechter said.

“Cross-industry spillover and domino effects are likely to be present as well.”