Australian businesses face worsening insolvency crisis amid rising costs and weak demand

Joe Rechichi, the chief executive at Cucina Hospitality Group, has been in business for four decades but says nothing compares with what he has experienced over the past few years, not least because of the immense day-to-day uncertainty.

“I call it BC and AC – Before Covid and After Covid,” says Rechichi, who oversees three Andiamo Trattoria restaurant venues across Sydney’s inner west.

“Whether it’s the cost of compliance, the cost of utilities, the whole world has changed and it’s not clear what it takes now to be a successful business.”

Rechichi says his business is increasingly at the mercy of conditions that are largely beyond his control – and often from overseas – such as war in the Middle East, cost-of-living pressures and the fallout from the pandemic.

“I used to pride myself on my budgets. Before Covid, you just knew where you were going and could make decisions about your business. Since Covid it has been the worst trading conditions.”

Surging wages, rents and electricity bills are hitting profit margins across corporate Australia. At the same time, firms are struggling to grow their revenue amid entrenched consumer pessimism in an economy stuck in low gear.

The compliance burden grows heavier every year, business owners say, and upcoming rule changes, from credit card surcharges to the plans to hike tax on trusts, threaten further costs and uncertainty.

Australia is in the middle of a tidal wave of insolvencies, as firms struggle and increasingly fail to cope with what could be described as a cost-of-doing-business crisis.

Just as households grapple with how to make the family budget stretch for another month, firms are also wondering if they will be able to keep their heads above water from one quarter to the next, let alone from year to year.

Many thousands are submerging; the number of companies entering into insolvencies has surged over the past two years to reach record levels.

Innes Willox, the CEO of the Australian Industry Group, says that there are about 70% more insolvencies a year now than there were going into the pandemic period.

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Firms managed to survive through the Covid lockdowns thanks to extraordinary levels of taxpayer-funded support, alongside forbearance by the Australian Taxation Office when it came to enforcing tax debts.

As a result, the number of companies becoming insolvent plunged through 2019-20 and 2020-21 to average about 4,600 across the two years, according to Asic data.

Unsurprisingly, as support rolled off the number of business failures returned to pre-Covid levels of about 8,000 a year in 2022-23. But then they jumped past 11,000 in 2023-24 – the most in data stretching back to the turn of the century.

Analysts interpreted this surge as a form of “payback” as the firms who may have failed earlier were it not for Covid support were now hitting the wall.

Except, as Willox notes, “the number of insolvencies didn’t normalise as we would have expected”.

Business failures climbed again to reach nearly 15,000 in 2024-25, or 40% above the last peak of about 10,800 in the early to mid-2010s. In the most recent financial year they were barely lower at 14,150.

“We are in phase two: businesses that have come out of Covid got through that first wave of insolvencies, and are now falling by the wayside,” Willox says.

Helen Owens, the founder and owner of Brisbane’s Tigerlamb hair salons, has experienced plenty of ups and downs in the 21 years since she started her business – not least the global financial crisis and then the “tears and pain” of Covid.

But right now feels different, Owens says.

“Pressure is coming from everywhere and all at once.”

Owens feels like her four salons have navigated their way through the worst of the times, and is proud of that – even as she recognises many business owners are not in the same position.

“I know everybody right now is treading water.”

She has seen so many businesses dying that she says “it feels like an episode of the Squid Game”, referring to the TV series about a dystopian survival gameshow.

While the raw insolvency numbers look dramatic, the picture is less dire when assessed relative to the number of firms, as the Reserve Bank of Australia has noted.

By this measure, insolvencies as a share of operating businesses was 0.5% in the most recent financial year, or about one in 200.

But that is still a long way above the 0.36% rate in 2018-19 and substantially higher than the pre-pandemic average of about 0.4%.

Willox believes the country is experiencing “a period of structurally elevated business insolvencies”.

The combination of weak demand and high and rising costs is particularly threatening for small businesses, which typically operate at much tighter margins than the bigger end of town.

Research by the RBA in April 2025 found that small firms accounted for more than eight in 10 insolvencies over the preceding few years.

Nearly nine in 10 small businesses say the cost of doing business is higher than a year before, according to a recent survey of small regional firms by the Council of Small Business Organisations Australia (Cosboa).

Three-quarters also told the survey their profits were down on a year earlier.

Skye Cappuccio, Cosboa’s CEO, said that was the second year in a row where her members were reporting rising costs and falling profits.

Meanwhile, CreditorWatch, a commercial credit agency, recently reported that one in eight cafes and restaurants had closed in the past year.

Patrick Coghlan, CreditorWatch’s CEO, said the statistics included businesses that did not become insolvent but decided to pull up stumps and cancel their business registrations.

CreditorWatch data on business-to-business payments shows high rates of firms not paying suppliers on time or defaulting on their payments – a warning sign of more business failures to come.

But business owners are natural optimists, and Owens says she does not feel like today’s business climate is the “new normal”.

“Currently there is not that feeling that we are coming out the other side for most business owners, but I’m excited because I know it will happen.”

As for Rechichi, he says while his customers are coming out less often, when they do, they’re making a bigger night of it.

“I’ve got a better handle on what I need to do in the business, so dollars are starting to trickle down to the bottom line.”