AVA Advisory insight report

Corporate insolvency & credit risk trends

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Corporate insolvency in Australia surged in April 2025 as economic headwinds continued to squeeze businesses across key sectors. The combination of sustained high interest rates, inflationary pressures, weak consumer spending, and tax compliance enforcement has created a fragile operating environment. Insolvency appointments are tracking at levels not seen since the early 2010s, signalling elevated credit risk across much of the economy.

For credit managers, lenders, and investors, this underscores the importance of forward-looking risk management and early intervention to avoid exposure to distressed counterparties.

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Insolvency overview

Company insolvencies:

Estimated 1,319 appointments nationally (based on trend data), marking a 28% increase year-on-year.

Top affected sectors:

• Construction (27% of all insolvencies)
• Retail trade
• Accommodation & food services
• Professional services (notably smaller consultancies and creative firms)

Size of companies affected:

• Predominantly small to mid-sized enterprises (SMEs)
• High incidence of businesses trading while insolvent prior to formal appointment
• Many impacted companies had ATO debts and lacked access to additional credit

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Sector in focus
Construction

The construction sector continues to dominate insolvency figures in 2025.

Contributing factors include:

• High materials costs locked into fixed-price contracts
• Delays in project commencements due to weather and regulatory backlog
• Subcontractors exposed to cascading failure from major builders collapsing
• Difficulty refinancing short-term debt as lenders reduce exposure

Noteable events:

• Several mid-tier residential and commercial builders entered administration in NSW and VIC in April and May
• Suppliers have begun enforcing stricter payment terms or requiring upfront payments, putting pressure on project cash flow

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Emerging trends
in retail & services

Retail insolvencies rose in line with weak consumer sentiment and cost-of-living pressures.

Key themes:

• Lower discretionary spending reducing foot traffic and online sales
• Rent increases and wage costs eroding margins
• Businesses reliant on BNPL or unsecured lending facing default risks

Professional services and hospitality also saw increased insolvency rates, particularly among firms with low capital reserves or client concentration risks.

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ATO debt
recovery pressure

The ATO continues to ramp up its debt recovery program, a major catalyst for insolvency appointments.

• Over 50,000 director penalty notices (DPNs) were issued in the last 12 months
• The ATO is targeting businesses with GST, PAYG, and superannuation debts
• Many firms delayed seeking advisory support, resulting in involuntary appointments

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Expert insight
What this means for credit risk

These developments point to heightened default risk across the SME landscape and certain mid-market operators.

Key credit risk signals include:

• Inconsistent or missed payments
• Unusual requests for extended credit terms
• Lack of recent financials or communication
• Poor credit file indicators and ATO action notices

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Credit risk
Mitigation strategies

To safeguard portfolios and limit downside risk, AVA Advisory recommends:

• Ongoing counterparty reviews
• Real-time credit monitoring & alerts
• Custom cash flow stress testing
• Strategic credit terms & collection planning
• Diversification advisory

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How AVA Advisory helps you
Mitigate credit risk

In economic environment marked by uncertainty, it’s critical to have a proactive, informed approach to credit risk. At AVA Advisory, we partner with clients to implement tailored strategies that reduce exposure and strengthen financial resilience.

Here’s how we can support your business:

Proactive counterparty risk reviews

We conduct in-depth, regular assessments of your customer and supplier base with a focus on high-risk sectors like construction, retail, and hospitality. This allows you to make informed credit decisions before defaults occur.

Real-time credit monitoring & alerts

Our integrated credit monitoring solutions track behavioural and financial red flags across your debtor portfolio. We’ll notify you of critical changes such as director resignations, court actions, or deteriorating payment habits, so you can act fast.

Custom cash flow stress testing

Using your existing financial data, we simulate stress scenarios (e.g., rising interest rates, revenue dips) to help you understand how clients may respond, and what it means for your receivables.

Strategic credit terms & collection planning

We work with you to implement smarter credit terms for at-risk accounts (e.g., 7-14 day terms) and introduce proactive follow-up workflows to avoid overdue blowouts.

Diversification advisory

If your revenue is heavily concentrated within a single sector or a few key clients, we’ll guide you through strategies to diversify and rebalance your portfolio, protecting you from industry-specific downturns.

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Looking ahead
H2 2025

• Insolvency volumes are likely to remain elevated
• Interest rates are expected to hold at 4.35% following May’s RBA decision
• The ATO’s collection program is ongoing
• Construction, hospitality, and services will remain under pressure

Sectors with stronger resilience include:

• Healthcare
• Education & training
• Essential services

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AVA Advisory
Our view

The rise in insolvencies is a symptom of broader systemic risks such as, tight margins, delayed action, and a still-recovering economic landscape. Businesses that invest in forward-thinking risk frameworks will be better positioned to withstand shocks.

If you are unsure about the financial health of your partners or clients, speak with an insolvency consultant today.

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