Australia’s staff shortage crisis is contributing to business failures in the construction, hospitality and financial sectors, with warnings a “bankruptcy spate” is just beginning, experts said.
Gareth Gammon, director of Insolvency Australia, said the skills shortage will be one of the persistent triggers of insolvencies in the coming months as his specialists are already seeing a surge in companies going under.
“We are in uncharted waters; Staff shortages are endemic in several industries and the unemployment rate is at a record low of 3.5 percent,” he said.
“This is one of the biggest challenges facing businesses, especially small and medium-sized businesses.”
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Nick Cooper, managing partner of Oracle Insolvency Services, said labor shortages have been an issue in his company’s recent bankruptcy proceedings.
“The hospitality industry in particular has a hard time finding workers. The supply of components, raw materials and services will also become problematic for many companies,” he said.
“As corporate suppliers suffer from staff shortages, there are delays in sourcing inventory to keep a business running. There are also delays in postal and freight traffic due to a lack of staff.
“More recently, labor shortages are also affecting the financial services sector. Even when opening bank accounts at major banks, we have seen the time frame blown from one day to two weeks.”
From start-ups to long-established companies, the number of businesses failing across Australia has started to pile up in 2022.
It’s no secret that Australia’s construction industry has seen tremendous upheaval this year and has been plagued by a string of meltdowns.
Earlier this year, two major Australian construction companies, Gold Coast-based Condev and industry giant Probuild, went into liquidation, while scores of smaller firms have also gone under.
Meanwhile, startups serving hospitality and retail have also not survived in recent months.
A Victorian grocery delivery company called Deliver, which billed itself as a rival to UberEats and Deliveroo, appointed insolvency practitioners last week.
At its peak, Deliver employed 200 riders but has reportedly struggled in recent months and in June offered a $100 sign-up bonus to encourage more riders to join.
Then there was food supplier Send, which had spent $11 million in eight months to stay afloat but collapsed in May.
Over in the financial sector, Australia’s first neobank, launched in 2017, Volt Bank also went under, using its 6,000 customers to urgently withdraw their money.
Tightening cash flow and falling profits coupled with staff shortages are having a chilling impact on businesses, added Domenic Calabretta, CEO of bankruptcy firm Mackay Goodwin.
“There’s a domino effect where staff shortages lead to loss of customer service and ultimately reduced revenue,” he said.
He predicted that the “drastic” staff shortages, particularly in tourism and hospitality, would also lead to “more distressed” companies in the sector in the coming months.
Australian states hardest hit
The difficult conditions are also affecting various states across Australia, with Victoria and Queensland being particularly hard hit by the construction crisis.
But Bob Jacobs, head of Auxilium Partners, said the “bankruptcy spate” across all industries has only just begun in Western Australia, with the number rising every week.
However, it wasn’t just the lack of staff that contributed to the collapse of the companies, the Australian tax authorities also demanded that debts be paid off.
“Another reason is that in May of this year, the ATO issued director fines, which meant directors had to act, with most opting for voluntary administration … or liquidation; and short-term factors such as stock shortages in the supply chain are also having an impact,” he said.
“I think the first impact will be corporate bankruptcies, while personal bankruptcies will also increase but probably lag a year or two behind the growth in corporate filings.”
But there is one sector spearheading the spate of mid-year bankruptcies, Mr Jacobs added, and that was home builders who secured fixed-price contracts during government building stimulus.
“Unfortunately, there is (generally) little to no assets for bankruptcy trustees to recover for creditors,” said Mr. Jacobs.
“I recommend tradesmen and suppliers in the construction industry to reconsider their payment terms. Creditors should not be treated like a bank and cash on delivery prevents bankruptcies with a knock-on effect.”
This list of construction meltdowns continues to grow and includes Inside Out Construction, Dyldam Developments, Home Innovation Builders, ABG Group, New Sensation Homes, Next, Pindan, ABD Group and Pivotal Homes.
Others that have also gone under are Solido Builders, Waterford Homes, Affordable Modular Homes and Statement Builders.
Hotondo Homes Horsham, a national homebuilder franchise, collapsed in July, leaving 11 homeowners with $1.2 million in outstanding debt.
It is the second Hotondo Homes franchisee to go under this year, according to a report by bankruptcy trustee Revive Financial. His Hobart office collapsed in January because he owed creditors $1.3 million.
Snowdon Developments has been ordered to liquidate by the Supreme Court with 52 employees, 550 houses and more than 250 creditors that owe nearly $18 million, despite being partially bought out less than 24 hours after it went bust.
Dozens of homeowners and hundreds of traditions have been shaken after a Victorian homebuilder called Langford Jones Homes went into liquidation on July 4, owing $14.2 million to 300 creditors.
Engineering job vacancies at a record high will also add to the construction industry’s woes, Mr Calabretta added.
“Australian engineering job vacancies, spanning multiple sectors and functions, are at a 10-year high, with the pandemic leading to closures of state borders and the departure of many foreign workers who left Australia to return home – and they are have not returned here yet, but have left a major shortage of skilled workers,” he says.
“Staffing issues are also being exacerbated by the rapid rise in construction material costs, which is causing many companies to struggle to meet bids that could be a year or more out of date in terms of pricing by the time a job is awarded.”
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