Rising insolvency figures linked to skills shortages

Insolvency Australia, an independent marketplace for insolvency services, has urged businesses to “assess, communicate and speak up” regarding skills shortages leading to insolvencies.

According to Gareth Gammon, Insolvency Australia’s director, the platform’s members are reporting rising numbers of insolvencies, directly and indirectly as a result of staff shortages.

Mr Gammon stated that “we are in uncharted waters” when it comes to this current skill shortage “epidemic” among multiple industries, despite the unemployment rate sitting at a record low of 3.5 per cent.

“This is one of the greatest challenges being faced by businesses, particularly SMEs,” Mr Gammon said.

“It’s crucial for financially distressed businesses to speak with a specialist adviser to determine the best solution.”

Nick Cooper, Insolvency Australia member and managing partner of Oracle Insolvency Services, also said that labour shortages are an issue with his firm’s recent insolvency appointments, drawing an example from the hospitality sector where they are “finding it tough to find workers”.

Along with this, Mr Cooper attributes “supply of components, raw materials and services” as further problematic issues facing business.

“As business suppliers suffer from staff shortages, there are delays in getting stock etc. to keep a business running,” Mr Cooper said.

“There are also delays in the postal and freight services, due to staff shortages. More recently, the labour shortages are also impacting the financial services sector.”

Another member and head of Auxilium Partners, Bob Jacobs, said that the flood of insolvency matters has just begun in WA, and is getting worse each week, particularly for SMEs.

Mr Jacobs also drew attention to another reason for this increase in insolvencies, other than skill shortages. He explained that the ATO “issuing Director Penalty Notices (DPNs) in May this year” has led directors to act, “with most opting for voluntary administration,” followed by Deeds of Company Arrangement (DOCA) or liquidation.

Commenting on some tips for SMEs on how they can succeed in the new financial year, Mr Jacobs said:

“Businesses that fail to communicate are likely to fail with cash-flow. The coming year will be ‘steady as she goes’ for businesses that have cash reserves or finance support to normalise cash-flow.”

CEO of Mackay Goodwin, Domenic Calabretta, said although he hasn’t seen any cases of insolvency directly caused by staff shortages, he still acknowledged that “it is definitely one factor of many in the current business cases we are dealing with,” along with tightened cash-flows and margins.

“It creates a domino effect where the staff shortages result in a loss of customer service and ultimately lead to reduced revenue,” Mr Calabretta said.

He further commented that despite the government developing a new hotel and accommodation sector labour agreement between eligible employees and the federal government for the purpose of recruiting overseas workers that don’t qualify for a permanent residency under the TSS (482) visa program, “the visas can still take more than a year to apply for and come through”.

This latency in visa processing will prove to be “too late” for some hospitality and tourism businesses. Therefore, “we can expect more distressed businesses in that sector,” according to Mr Calabretta.