Job shortages causing company collapses in hospitality, construction and finance

Job shortages causing company collapses in hospitality, construction and finance

Australia’s staff shortage crisis is contributing to company collapses in the construction, hospitality and finance industries with warnings that an “insolvency flood” is just beginning, experts said.

Gareth Gammon, Insolvency Australia director, said the skills shortage will be one of the ongoing triggers of insolvencies in the coming months with its specialists already witnessing a spike in companies going under.

“We’re in uncharted waters; staff shortages are endemic across multiple industries and the unemployment rate is at a record low of 3.5 per cent,” he said.

“This is one of the greatest challenges being faced by businesses, particularly small and medium enterprises.”

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Nick Cooper, managing partner of Oracle Insolvency Services, said among his firm’s recent insolvency appointments, labor shortages were an issue.

“The hospitality sector, in particular, is finding it tough to find workers. Also, the supply of components, raw materials and services is becoming problematic for many businesses,” he said.

“As business suppliers suffer from staff shortages, there are delays in getting stock to keep a business running. There are also delays in the postal and freight services, due to staff shortages.

“More recently, the labor shortages are also impacting the financial services sector. Even opening bank accounts with major banks, we’ve seen the timeframe blow out from one day to two weeks.”

From start ups to long established companies, the number of companies falling over across Australia has begun to pile up in 2022.

It’s no secret that Australia’s construction industry has experienced huge upheaval and has been plagued by a spate of collapses this year.

Earlier this year, two major Australian construction companies, Gold Coast-based Condev and industry giant Probuild, went into liquidation, while countless smaller firms have also gone under.

Meanwhile, start ups serving the hospitality and retail sector have also failed to survive in recent months.

A Victorian food delivery company called Delivr that styled itself as a rival to UberEats and Deliver appointed liquidators last week.

At its peak Delivr was employing 200 drivers, but was reportedly struggling in its last months, offering a $100 sign-on bonus in June in a bid to encourage more drivers to join.

Then there was a grocery delivery company Send that had spent $11 million in eight months to stay afloat but collapsed in May.

Over in the finance sector, Australia’s first ever neobank founded in 2017, Volt Bank, also went under using its 6,000 customers to withdraw their money urgently.

A tightening of cash flow and profits being squeezed combined with staff shortages is having a chilling impact on businesses, added Domenic Calabretta, CEO of insolvency firm Mackay Goodwin.

“It creates a domino effect where the staff shortages result in a loss of customer service and ultimately lead to reduced revenue,” he said.

I have predicted the “drastic” staff shortages in tourism and hospitality in particular will also see “more distressed” business in the sector in the coming months.

Australian states hardest hit

The tough conditions are also impacting different states across Australia, with Victoria and Queensland particularly hard hit by the construction crisis.

But Bob Jacobs, head of Auxilium Partners, said the “insolvency flood” across all industries has just started in Western Australia, with the number picking up each week.

Yet it wasn’t just staff shortages contributing to companies demise with Australian Taxation Office demanding debts be paid up also a huge factor.

“Another reason is the ATO issuing Director Penalty Notices in May this year, which meant directors had to act, with most opting for voluntary administration… or liquidation; and short-term factors like lack of stock in the supply chain are also having an impact,” he said.

“I think the initial impact will be corporate insolvencies, while personal insolvencies will also rise, but probably a year or two behind the rise in corporate filings.”

Construction woes

But there’s one sector leading the deluge of midyears insolvencies, Mr Jacobs added, and that was builders who entered into fixed price contracts during the government construction stimulus.

“Unfortunately, (generally) there are little to no assets for insolvency practitioners to recover for creditors,” Mr Jacobs said.

“I suggest tradespeople and suppliers to the building industry reconsider their payment terms. Creditors should not be treated like a bank, and payment on delivery prevents domino-effect insolvencies.”

That list of collapses in the construction sector continues to rise 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 gone under too include Solido Builders, Waterford Homes, Affordable Modular Homes and Statement Builders.

Hotondo Homes Horsham, which was a franchisee of a national construction firm, collapsed in July affecting 11 homeowners with $1.2 million in outstanding debt.

It is the second Hotondo Homes franchisee to go under this year, with its Hobart branch collapsing in January owing $1.3 million to creditors, according to a report from liquidator Revive Financial.

Snowdon Developments was ordered into liquidation by the Supreme Court with 52 staff members, 550 homes and more than 250 creditors owed just under $18 million, although it was partially bought out less than 24 hours after going bust.

Dozens of homeowners and hundreds of tradies were left reeling after a Victorian building firm called Langford Jones Homes went into liquidation on July 4 owing $14.2 million to 300 creditors.

Engineering vacancies at a record high will also contribute to the construction industry woes, added Mr Calabretta.

“Australian engineering job vacancies encompassing multiple sectors and roles are at a 10-year high, with the pandemic creating state border closures and the exit of many foreign workers who left Australia to return home – and they haven’t yet returned here, leaving a huge skills shortage,” he said.

“Workforce issues are also exacerbated by the rapid increase in the cost of construction materials, leaving many companies struggling to honor quotes that might be a year or more out of date in terms of pricing, by the time a job is awarded.”

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