Construction is the largest single source of corporate insolvency inAustralia, and has been for years

ASIC's insolvency data for the 2025-26 financial year records 14,152companies entering external administration for the first time, a small decline from the 14,722 recorded in 2024-25, which was itself a 33.2 per cent increase on the year before.

Construction insolvencies accounted for 3,472 of the 2025-26 total, the largest share of any industry and ahead of accommodation and food services at 2,078. The construction share sits at roughly a quarter of all appointments, consistent with the 27 per cent ASIC reported for 2023-24 and the 28.3 per cent of small business restructuring appointments recorded in the year to March 2025. The concentration persists across different interest rate environments and different points in the property cycle, so the causes are structural, not cyclical.

Construction insolvency concentrates at the head contractor and builder level because of how risk is allocated in the industry's contracting model. Fixed price contracts transfer cost escalation risk to the builder for the period between tender and completion, which on multi-year projects can span material movements in materials, labour and sub contractor pricing.

The Building 4.0 CRC study of construction insolvency, published in October 2025, records material costs rising around 40 per cent over five yearsand build times extending by up to 80 per cent over the same period. Margins in Australian building contracting are thin enough that a modest percentage costincrease on a large contract exceeds the margin on it. Legacy fixed price contracts written before the post-pandemic cost escalation are repeatedly identified as the debt overhang that the surge in small business restructuringsfrom 2023 onwards was dealing with.

Three further features of the industry compound that contractual exposure, the first being that payment flows through a sub contracting pyramid, so that a single head contractor failure transmits losses to dozens of trade creditors who have already incurred labour and materials costs, which is the mechanism by which construction insolvencies cluster. Cash conversion is slow, with progress claims, retention amounts held to practical completion and defects liability periods extending the interval between expenditure and final payment. Private building companies are typically thinly capitalised relative to contract values, which the CRC study bears outin finding that 79 per cent of construction insolvencies involved firms withfewer than 19 full-time employees, that most entered insolvency with minimal secured debt and heavy reliance on unsecured trade credit, and that a third owed more than $250,000 in unpaid tax. Security of payment legislation in each state provides adjudication mechanisms to accelerate progress payments through the chain, which moderates the timing risk without altering the underlying allocation of cost risk.

The collapse of the Bathla Group

The Bathla Group administration, which began on 25 August 2026 with Teneo appointed as voluntary administrator across the group, is the largest Australian corporate administration since Virgin Australia in 2020. Bathla, trading through Universal Property Group and related entities since 1997, built affordable house and land packages, town houses and apartments across north-west Sydney, the Hunter and Victoria.

At the date of appointment of administrators, it had about 2,000 homes under construction across 45 active sites, a further pipeline variously reported at 13,000 to 15,000 dwellings, around 350 employees and, according to the administrators, no cash. Universal Property Group reported liabilities ofnearly $3.2 billion at 30 June 2025, and the creditor group organised by Corporate Recovery Partners has since put identified debts at $3.6 billion across roughly 12,000 exposed parties.

The causes cited by the group were softening sales, falling confidence in its markets, cost escalation and tax changes in the May 2026 Federal Budget. Those are the same pressures that put small builders into liquidation, applied to an integrated developer and builder that funded its pipeline almost entirely with debt. Two warning signs were visible well before the appointment, the first being that lender Alceon progressively reduced a potential $670 million exposure to zero by late 2025 and declined to keep lending as the group moved into higher-risk projects and an earlier lender, Napla, had exited in 2022.

Reporting in January 2026 described funds being moved between projects to meet obligations, and new lenders, including Centuria Bass, Credit Connect andfamily offices, refinancing the positions others were leaving. Centuria Bass paused redemptions and applications on its credit fund on 14 August 2026, 11 days before the administration.

The weeks after the appointment show how a construction insolvency transmits loss, because Teneo needed about $20 million from the lending group to fund 5 weeks of construction and a $3.3 million monthly payroll against a projected cash burn of $40 million to December, at a point where staff had already gone unpaid for up to eight weeks.

Subcontractors such as Delta Foundations were owed hundreds of thousands of dollars each, and the administrators counted up to 1,000 customer deposits, some of which the contracts allowed the group to spend. The NSW Government declined to contribute, with the Treasurer stating that the obligation belonged to the private credit firms that took the risk. Some lenders took direct control of their own sites, with PAG committing to complete the 312 apartment Pemulwuy project and pay contractors directly.

Private credit is now the marginal lender to Australian construction

Bathla's roughly 40 lenders were almost entirely non-bank, with reported exposures running from $1.5 million to about $340 million per fund, with PAG above $300 million, and CVS Lane Capital Partners and Centuria Bass among the largest. Named lenders also include MaxCap, Wingate, Balmain, Ray White Capital, Keyview, La Trobe Financial, 360 Capital and Trilogy Funds.

As the banks retreated from development lending under tighter prudentialsettings, private credit became the marginal source of construction and residual stock finance in Australia. The Reserve Bank has noted that non-bank lenders' share of property development lending has grown faster than their share of housing lending. ASIC's Chair said in July 2026 that the market had reached $250 billion, that more than half of it was concentrated in property development and construction, and that it had not been tested in a downturn.

The Bathla exposure differs by lender in ways that will determine recoveries, since Centuria Bass holds six facilities, all secured by first mortgage with partial cross-collateralisation, comprising two construction loans and a set of residual stock and land loans. CVS Lane holds nine loans across its First Mortgage Fund and Property Finance Fund and has suspended redemptions pending review at the end of October. La Trobe Financial disclosed $38.1 million across four residential loans and one development loan on aproject reported as 95% complete. Trilogy Funds disclosed $29.79 million across two of its 131 loans, and Keyview has said its loans are in repayment. A first mortgage over completed residual stock is a different asset from a first mortgage over a half built apartment block whose builder is the insolvent borrower. In construction lending the security is worth less than the debt until the building is finished, and someone has to pay to finish it.

So far the damage to the funds has shown up as liquidity rather than credit loss, with Centuria Bass, CVS Lane, Merricks, Longreach Credit and MA Financial all restricting or capping investor withdrawals in August 2026, MA Financial limiting redemptions to 1% of funds under management per month, and SQM Research downgrading the Centuria Bass Credit Fund to non-investment grade.

ASIC described the episode as the first real test for Australian private credit and the first significant cracks, and its November 2025 surveillance had already found that most funds reviewed lacked effective separation between the committee approving loans and the people monitoring them, that fewer than half had detailed written default management policies, and that reported default rates of 0 to 6% were not measured on a consistent definition. A fund that restricts redemptions cannot deploy new capital, so the immediate effecton the building industry is that construction finance approved before August 2026 may not draw down when it falls due.

How lendersand trade creditors manage construction exposure

For credit providers, the answer is likely loan structure rather thansector exclusion, and the Bathla facts point to the controls that matter: progress-linked drawdowns certified by an independent quantity surveyor, direct payment of sub contractors on the funded project, pre-sale and deposit verification, borrower level rather than project level exposure limits, and refusing to refinance a position that an incumbent lender is choosing to leave without understanding why.

Concentration limits at the book level sit behind all of that, becausethe funds now restricting redemptions may be funds where one borrower group wasa material share of the book.

For trade creditors, counterparty structure should determine appropriate credit terms, particularly where a long standing customer operates through a thinly capitalised contracting entity within a larger group.

Within building companies themselves, lengthning creditor days, increasing reliance on unpaid tax as a funding source, funds moved between projects, and progress claims applied to prior period losses rather than current work typically precede formal insolvency by several months.

Sources
  • ASIC,Corporate Insolvency Update Issue 37 (2025):https://www.asic.gov.au/about-asic/corporate-publications/newsletters/asic-corporate-insolvency-update/asic-corporate-insolvency-update-issue-37
  • ASIC,Annual insolvency data 2023-24:https://www.asic.gov.au/about-asic/news-centre/news-items/annual-asic-insolvency-data-reveals-increase-in-companies-failing/
  • AccountantsDaily, Company insolvencies climb to 14,152 for FY2025-26 (July 2026):https://www.accountantsdaily.com.au/business/22687-company-insolvencies-climb-to-14-152-for-fy-2025-26
  • AccountingTimes, Construction and hospitality insolvencies continue to climb (2025):https://www.accountingtimes.com.au/economy/construction-and-hospitality-insolvencies-continue-to-climb-asic
  • Building4.0 CRC, Project 80: Why are insolvencies so high in the construction industry(October 2025):https://building4pointzero.org/wp-content/uploads/2025/10/CRC80_Project-Report_Final-Version-for-publication.pdf
  • ASIC, REP820 Advancing Australia's capital markets: private credit (November 2025):https://download.asic.gov.au/media/q42bgduw/rep820-published-5-november-2025.pdf
  • ABC News,ASIC sounds alarm on Australians' exposure to growing risks in private credit(20 July 2026):https://www.abc.net.au/news/2026-07-20/asic-raises-alarm-on-private-credit/106929244
  • The UrbanDeveloper, Urgent talks under way as overextended Bathla Group collapses(August 2026):https://www.theurbandeveloper.com/articles/bathla-group-administration-sydney-developer-collapse-debts-teneo-appointed