In May this year, I posed the question as to whether the often spoken of insolvency tsunami was finally upon us (https://www.cathropartners.com.au/insight/is-the-tsunami-finally-upon-us) and whilst that hasn’t eventuated, formal appointment numbers have continued to rise consistently over the period since and it appears as though this trend will remain through the end of this calendar year.
This year, Cathro and Partners have had a number of appointments in the energy, construction and information technology sectors which in my view are a product of the national and international economic headwinds that have been with us for most of this year.
The construction sector continues to experience significant distress on the back of the well-published supply constraints, costs of labour and materials, covid 19 delays and continuing interest rate rises which are spooking buyers and making it more difficult for developers to raise construction finance at terms that make projects viable.
The information technology sector has also experienced a change in investor appetite over this period and additional funding rounds continue to be challenging. Valuations are now falling off the 2021 highs in most instances. This has led to extensive layoffs and in some cases formal restructuring appointments within this space.
The energy sector continues to be affected by the war in Ukraine, floods and the concurrent move away from fossil fuel production toward green energy production with all of these factors putting upward pressure on prices at both the wholesale and retail levels. Several load hedge providers have also exited the market which is squeezing retailers further.
The continued pressures in the above sectors, and more broadly, continue to be borne out in the appointment statistics. The below table provides data compiled by the Australian Securities and Investments Commission in relation to the number of notifications of Companies entering external administration and controller appointments on a weekly basis for the period 1 July 2022 through 30 September 2022.
As you can see, the percentage change in appointment notifications for the period 1 July 2022 through 30 September 2022 compared to the 1 July 2021 through 30 September 2021 has consistently been significantly higher over the entire period and more akin to the pre-pandemic insolvency levels in the 2019 financial year.
Anecdotally, October 2022 appointments appear to have dipped slightly in comparison to pre covid levels and it will be interesting to see if this is a momentary correction or the start of a trend back to lower appointment levels. Based on what we are hearing from our networks, I suspect it is more likely to be the former rather than the latter.
