There are growing fears about the number of “zombie” companies being artificially propped up by wide-ranging government support and the damage they could do to other small businesses.
Data from the Australian Securities and Investments Commission shows the number of companies entering administration in WA in September was down almost 42 per cent on last year.
But while on the surface these numbers look encouraging, experts have warned they could be a sign that insolvencies could rocket once the JobKeeper subsidy ends.
Many insolvent companies are still trading as they have not been filtered out of the economy because the Federal Government gave directors temporary amnesty from insolvent trading claims. This ends on December 31.
Brendan Nixon, a partner with SM Solvency Accountants, warned all businesses needed to bolster their credit assessment of both new and existing customers to ensure they were paid.
“These companies need to make sure they are only supplying goods and services to companies who have the capacity to repay,” he said. “Many do not as they are already insolvent.
“The indirect impact of the pandemic has been government intervention to stem what was forecast to be a tidal wave of corporate insolvencies. It appears the measures may have been either too early, or too powerful, as the rate of corporate insolvencies is now well below what it would normally be.”
Mr Nixon said voluntary administration appointments were down 64 per cent nationally in October and court-ordered liquidations down 93 per cent.
“The fall in voluntary administrations is a concern because these are the types of appointments that enable businesses to be traded on and restructured or sold – their decline in the midst of Australia’s first recession in 30 years and a global pandemic is indicative that many struggling businesses are choosing not to use the available tools to try and work their way out, but are instead coasting along as potential zombie companies with no future,” he said.
The Federal Government recently reduced JobKeeper from $1500 to $1200 a fortnight for full-time workers, with another cut planned in January before the program ends in March next year.
Reserve Bank Governor Philip Lowe is one of many who has warned of upcoming business failures, recently telling a parliamentary committee: “There will be insolvencies … some businesses will not recover.”
And with the country facing a tidal wave of insolvencies when it stop, SM Solvency Accountants is offering a unique digital “zero contact liquidation” to help ease the burden on mum and dad businesses in WA.
Many traditional firms charge up-front fees of at least $10,000 – and some significantly higher – while digitalised firm SM Solvency Accountants typically charges an upfront fee of $2000 to help basic mum and dad businesses move forward through tough times.
“It’s a huge convenience in terms of being a time and cost saver,” Mr Nixon said.
“We know that decisions involved with a distressed business are varied and complex, so we are providing an opportunity to quickly access information and ask questions – all from the comfort of a home office.”