Insolvencies continue to track sideways at elevated levels

Key insights:

Warning signs flash despite some stabilisation – Insolvencies remain elevated but broadly stable; however, the July spike in B2B trade payment defaults signals fresh pressure on businesses and the risk of another lift in insolvencies.

Traditionally ‘safe’ industries wobble – Sectors like Financial and Insurance Services and Healthcare and Social Assistance, usually seen as low-risk, are showing a rise in insolvencies and payment defaults, highlighting how widespread the strain has become.

Discretionary sectors hardest hit – Construction, Hospitality and Retail continue to carry the highest insolvency burden, reflecting ongoing stress in industries most exposed to tightening in consumer spending.

Sectoral rotation in stress areas – Previously hardest-hit industries like Construction and Hospitality are showing early signs of stabilisation, while new pockets of weakness are emerging in Transport, Professional Services and Healthcare, signalling a shifting insolvency landscape.

Interest rate cuts bring relief but not a cure – While recent RBA cuts are beginning to support households and businesses, rising energy costs, wages and global trade headwinds mean insolvencies are expected to stay high in the months ahead.

Western Sydney the insolvency hotspot – Six of Australia’s 10 worst-performing regions are in Western Sydney, driven by lower household incomes, high concentrations of small construction businesses and elevated personal insolvency rates.

The July Business Risk Index from leading credit reporting agency CreditorWatch reveals a duality in the Australian business landscape with certain sectors and regions showing resilience while others continue to struggle.

The data also shows that conditions in some of the worst performing sectors have begun to stabilise, while prior out-performers are recording some deterioration.  While CreditorWatch has been optimistic about a stabilisation in insolvencies at elevated levels, rather than an outright improvement, we are carefully monitoring a renewed jump in B2B invoice defaults in July. This may warn of a further rise in insolvencies.

CreditorWatch CEO Patrick Coghlan says, “While some sectors and regions are doing very well, the warning lights are flashing for sectors highly exposed to discretionary spend, and small businesses facing persistent cash flow pressure.

“An additional concern is the slight lift in in insolvencies and payment defaults in sectors that are traditionally low risk, like Financial and Insurance Services and Healthcare and Social Assistance.

“We expect the RBA’s recent interest rate cuts to provide some support to both consumers and businesses over the coming months, and hope to see further interest rate reductions over the next six months.”

National insolvency trends

Insolvency data for July 2025 again reveals an elevated but generally stable level of insolvencies, a trend that emerged over the first half of 2025. The stabilisation at relatively high levels reflects a similar stabilisation in the trends for trade payment defaults and new ATO tax default numbers, though payment defaults jumped in July.

On the macroeconomic side, companies and consumers benefited from the July 2024 income tax cuts and some slowing in the rate of cost and price increases.

The RBA’s interest rate cuts from February and May, are beginning to help to some degree, with the further cut in mid-August to be beneficial in coming months.