The pandemic continues to affect small businesses in Australia, and an insolvency expert predicts that thousands of businesses will collapse in the coming months.
Gareth Gamon, director of Australia’s insolvency division, says the first wave of insolvency is likely to happen after the election and tax season. Gamon predicts it will be not just the zombie business that calls it the day, but a growing number of legitimate businesses that have been doing it brutally for the past twelve months.
“I have heard from members of Insolvency Australia that there will also be an increase in the number of ‘legitimate’ trading companies seeking insolvency or restructuring support, especially those that have exhausted their cash reserves and are being rejected for funding or patience,” Gamon said.
Unviable businesses will stop
Government support during the pandemic has allowed a number of businesses to stay afloat, but as support returns, some businesses believe they are more unviable. Financial instability and changes in the social situation after COVID-19 affect many.
“After two years of ‘standstill’ for the insolvency sector, we are seeing an increase in the number of external administrations, and although the level has not yet returned to normal, it can be expected to happen in the next 18 months or more,” Gamon said. .
Debt collection is resumed
Special pandemic laws that protected businesses from insolvency no longer apply, which means that the ATO and creditors can collect debts. Inflationary pressures and pre-election unrest are also fueling tensions.
“The March ABS figures show that almost a quarter of companies expect that fulfilling their financial commitments over the next three months will be difficult or very difficult, it really increases the countless pressures on directors.”
In a recent straw survey of members (registered liquidators and bankruptcy trustees) Insolvency Australia found that most believe the number of insolvency issues will increase starting in July and then later this year after the effect of rising interest rates and inflation will be squeezed. .
Hospitality, construction and retail have been hit hard
The sectors most under pressure include hospitality due to likely constraints on consumer discretionary costs, as well as construction and construction due to labor shortages and increased costs for fixed-price contracts.
Failures are also expected in business in the areas of healthcare, welfare, retailers, tourism, hospitality and contracts.
Bob Jacobs, head of the insolvency department of Auxilium Partners, says that businesses in these sectors have been experiencing difficulties for some time and are often poor assets.
“Unfortunately, such companies have the least real assets that can be sold for payment to creditors. he said.
Jacobs urges any business owner facing financial pressure to seek help as soon as possible.
“The sooner company directors seek advice from specialists in registered ASIC liquidators, the more likely they are to avoid liquidation. Their business may only require administration and restructuring. Also, beware of financial strategies proposed by bankruptcy counselors that are not registered with the ASIC, ”he said.
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