Hospitality sector facing a tough recipe as insolvencies rise

Jirsch Sutherland is experiencing a significant increase in insolvency and restructuring inquiries from the hospitality sector as businesses across Australia grapple with escalating costs and economic uncertainty. Recent data from the Australian Securities and Investments Commission (ASIC) reveals that hospitality insolvencies have increased by over 70% year-on-year, with 1,312 hospitality businesses facing insolvency this financial year compared to 771 in the previous year.

The latest ASIC data also highlights that in the six months from July to December 2024, insolvency appointments across all sectors reached 7,483 – a 47.1% increase compared to the same period in the previous year. The Accommodation and Food Services industry, which includes a significant portion of the hospitality sector, accounted for 15.2% of all insolvencies during this period.

Andrew Spring, Partner at Jirsch Sutherland, recently addressed these challenges at the AICM NSW Risk Seminar during a panel discussion on insolvency trends, Small Business Restructuring (SBR), Preference Payments, and the Personal Property Securities Act (PPSA). The interactive session generated strong engagement from creditors who supply to the hospitality industry, many of whom reported a sharp rise in defaults from their hospitality clients.

“The feedback from trade creditors was consistent – many hospitality businesses are under significant strain,” Spring says. “The increasing costs of supplies, rent, and energy, combined with reduced customer spending, are creating a challenging environment for the sector.”

From the kitchen to insolvency: firsthand insights

Hanzel Hizola, Principal with Jirsch Sutherland, brings unique insight into the challenges facing the hospitality sector, having worked as a chef on the Gold Coast and in Brisbane before transitioning to insolvency. “Having worked in the industry, I understand how tough it can be to juggle rising costs and unpredictable customer demand,” Hizola says. “Hospitality is one of my key areas of focus, and we’ve been handling several cases recently where businesses just couldn’t weather the storm.”

Hizola points to a range of recent matters involving hospitality businesses, including a company operating two Thai restaurants that is set to enter the SBR process shortly. “SBR gives businesses a structured way to engage with creditors and develop a workable repayment plan while continuing to trade,” he explains. “It’s an opportunity to reset and create a more sustainable path forward.”

He also highlights a case involving an Indian restaurant that was wound up by the Court, initiated by the ATO. “We’ll be managing the director’s bankruptcy as a consequence,” he notes.

Another case involved a family trust that opened three restaurants and takeaways in large, well-known shopping centres just before COVID hit. “They sold their home to fund the business, but with the pandemic’s impact and mounting debts, they had to shut down two locations and eventually offload the last one,” Hizola explains. “They now owe the ATO over $1 million.”

Suresh Manickam, CEO of Restaurant & Catering Australia (R&CA), has also spoken out about the crisis within the hospitality sector. He pointed to rising operational costs, including energy prices, interest rates, and labour expenses, as significant contributors to the industry’s difficulties. “The sector is under immense pressure, with nearly 1 in 11 businesses failing, as indicated by recent CreditorWatch reports,” Manickam says. “We are facing one of the toughest environments for the industry in recent years.” He added that many business owners are also battling IR fatigue due to complex industrial relations law changes, further exacerbating the situation.

Spring highlights the importance of engaging with restructuring options early, particularly through the SBR process. “The SBR process offers a structured path for businesses to work with creditors and develop a manageable repayment plan while continuing to trade,” he explains. “Engaging early gives businesses the best chance of survival and protects jobs.”

Rising costs vs. consumer demand: the need for action

The broader hospitality sector is struggling to balance rising costs with consumer affordability. Industry leaders have noted that businesses face limited ability to pass on increased costs to customers without affecting demand. “There’s only so much you can put the price of a schnitzel up before customers decide to cook at home,” one industry representative said.

Spring’s insights at the seminar reinforce the need for both businesses and creditors to take a proactive approach. “The challenges are real, but solutions are available,” he says. “Understanding the restructuring options and engaging early with the right advisors can make the difference between survival and closure.

“As the hospitality sector faces ongoing headwinds, we remain committed to supporting businesses and creditors with expert guidance and practical solutions to manage financial distress and create positive outcomes.”