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What sectors were hit hardest in insolvency surge?
With insolvency rates soaring to record-breaking highs this year, a BigLaw partner delves into the sectors bearing the brunt of the strain.
Grace Robbie
Speaking on a recent episode of The Lawyers Weekly Show, Maria O’Brien, a partner specialising in restructuring and insolvency at Clayton Utz, explored which industry sectors faced the most severe challenges and disruptions due to unprecedented insolvency rates recorded in 2024.
In the same episode, she discussed Australia’s dramatic rise in corporate insolvency this year. She also delved into the various interconnected factors contributing to corporate insolvency “really taking off this year”.
O’Brien revealed that the construction sector has emerged as the most troubled industry, with the resident segment facing the most significant challenges.
“Construction has been the problem child for some time, and the construction insolvency numbers are truly terrifying, particularly in residential,” she said.
The primary reason this sector has been affected the most, as O’Brien explained, stems from the challenges posed by “fixed-price contracts”.
“There are sensible structural reasons for that around particularly fixed-price contracting, which, in light of supply costs and inflation, have been like totally underwater, such that, inevitably, builders have fallen over because they just can’t make the numbers work,” she said.
“It remains the case that it is an industry that has its challenges, and we’ve seen that with the Construction, Forestry and Maritime Employees Union issues and with some sort of what I would call broadly productivity issues, which are pretty state-specific.”
O’Brien stated that although the construction industry was hit hardest, other sectors have also felt the effects of economic pressures.
“Other areas where we’ve seen similar problems not quite as bad but have also kept us busy include property that’s interest rate-driven, mining services, hospitality, retail, private health and either now upcoming aged care and education,” she said.
Looking ahead to 2025, O’Brien emphasised that numerous professions within the restructuring and insolvency sector are poised to address the anticipated increase in restructuring activities across various industries. However, she also noted that external shocks can significantly influence the occurrence of insolvencies.
“There are quite a few areas where we can confidently expect to see busyness going forward. And then there’s always, on top of that, the random out-of-the-blue stuff that hits us in restructuring and insolvency.
“The best example of that is obviously COVID. We didn’t see the mass of insolvencies we expected, but we did, of course, see Virgin Australia collapsing on 20 April 2020 because the planes couldn’t fly anymore. There’s always these external shocks that also lead to restructuring and insolvency work and are a bit unpredictable,” she said.
“One that, I guess, we don’t really know how it’s going to play out, but we all going to have to give it a whole lot more thought is the outcome of the US election and how, for example, tariffs and other, you know, emanations from the Trump administration are going to impact Australia. And I think to some extent that’s a bit at large.”
