“The [Australian Tax Office] have been proactively reducing their arrears for some time now, and we expect this trend to continue and the ATO to be more proactive in the market,” said Sebastian Hams, a restructuring partner at KordaMentha.

Part of the change in outlook has been caused by increased interest rates, the survey found, but there is also the overhang of COVID where many businesses received support from the government and the ATO amnesty. As a result, turnaround specialists surveyed believe many businesses are not prepared for such a severe economic downturn.

‘Construction was the first industry to be affected, unable to pass on rising costs due to fixed-price contracts. We are now seeing other industries affected [...] It’s trickling through the economy.’

KordaMentha’s James Wagg

“During and post COVID we had supply chain issues, which affected costs for manufacturing,” said James Wagg, KordaMentha executive director of performance improvement.

“Now rising interest rates and inflation with resulting cost increases are causing a drop in discretionary spending and profitability. So many borrowers have been forced to the secondary, more expensive money market,” Wagg said.

Against this backdrop, relatively healthy businesses are shrinking their business or winding back their growth aspirations. Several thousand staff have already lost their jobs in Australia’s nascent start-up scene following a series of collapses of the profitless, growth-driven businesses including food-focused delivery services Milkrun (since resurrected by Woolworths) and Providoor.

Loading

Those collapses followed a run of corporate failures in the economically battered building sector, hitting companies including Porter Davis, Mahercorp and Toplace.

Wagg said the tightening of the economic outlook was causing a waterfall effect for businesses.

“Construction was the first industry to be affected, unable to pass on rising costs due to fixed-price contracts. We are now seeing other industries affected, like retail impacted by increased cost of living and reduced consumer spending.

“The next are likely to be services industries such as health as government funding fails to keep up with increasing costs. It’s trickling through the economy.”

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.