Covid lockdowns puts hurt on small construction businesses

A Master Builders Victoria (MBV) analysis of Australian Securities and Investment Commission (ASIC) insolvency figures has highlighted the impacts of COVID-19 on small businesses.

There were 19 Victorian building and construction companies that entered external administration in August 2021, and 360 building and construction insolvencies were recorded in Victoria for the 12 months to August 2021, four less than NSW, which recorded a nationwide high of 364 insolvencies.

Master Builders Victoria CEO Rebecca Casson said that in the three months to August 2021, Victoria saw 63 building and construction companies entering external administration, up 16.7 per cent compared with the same period 12 months ago.

“One of the reasons why building and construction accounts for a larger proportion of insolvencies is because our industry has the largest number of firms in Victoria,” Ms Casson said.

Building and construction businesses in Victoria totalled 111,111 as of June 30, 2020.

“The vast majority of these are small businesses, with 69 per cent operating as sole traders and 30 per cent of building and construction businesses hiring less than 20 employees in Victoria,” Ms Casson added.

Nationwide, August 2021 saw 82 building and construction companies across Australia entering external administration, 10 more than in July.
However, Ms Casson said the volume of building and construction insolvencies is quite low by historical standards, and the trend of recent months has been largely downward.

“During August, building and construction accounted for just under one-quarter (23.2 per cent) of insolvencies across all sectors and industries,” she said.

“In percentage terms, the 82 building and construction insolvencies recorded during August 2021 across Australia represented a big increase (+61 per cent) from August 2020 when 51 building and construction insolvencies occurred.

“The pandemic has demonstrated that small businesses are amongst those that have been hit the hardest, as they are less equipped to handle large declines in cashflows.

“However, insolvencies across all sectors were remarkably low during 2020, which could be attributed to the range of business supports in place because of the COVID-19 pandemic.

“Compared to what was typical over the years since 2013, the current volume of building and construction insolvencies is quite low, and the experience of recent months suggests that it may be embarking on a downward trend.”

The five-year monthly average for building and construction insolvencies during August in Victoria is 33.8, making it one of the busier months of the year.

The result for August 2021 thus compares favourably to this score, nevertheless, Ms Casson warned that the lockdowns in Victoria in the second half of 2021 are likely to influence insolvency over coming months.

“With the end of government stimulus packages approaching as our state begins to ease out of COVID-19 restrictions, along with changes in debt financing capabilities recently introduced by APRA, our industry can expect to feel a slowdown as the sugar rush starts to fade,” she said.