Insolvency figures plummet, fears over credit lines
The number of Australian businesses going into liquidation or administration plummeted to way below normal levels in July and August, leading to fears of the true state of many businesses, with printers warned to ensure they keep a tight rein on credit terms.
Winding-up applications are down by 89 per cent. In fact, the ATO did not file any winding-up applications in July or August. Insolvency outfits say this is consistent with their understanding that during this period, the ATO is more focused on business support measures than recovery procedures.
In the same two months court liquidations are down 74 per cent, with voluntary administrations down 62 per cent. But, after adjusting the figures to record multiple companies in a group as a single appointment, the number of VAs are down 66 per cent, while voluntary liquidations are down by 37 per cent.
Insolvency experts say the government's Covid stimulus packages are making it relatively easy for a business to carry on even in the face of huge drops in cashflow. Business can have their staff each paid $750 a week with JobKeeper, their rent cut in half, they can't be evicted, and they can't be taken to court for insolvency for six months, compared with the usual three weeks. Some in the finance world say with the wrong intentions the package could become a crooks' charter.
The stimulus, while welcome, is leading to the emergence of so-called zombie companies. These companies have no intention of paying their rent or suppliers, have their staff paid by the government, know they can't be wound up, and are undercutting everyone in the market.
Printers are being warned to take extra care with credit checks and ensure their customers have the means to pay.
Usually in a recession, businesses of all kinds – including printers – would be dropping like flies. But his time around, the opposite has been true, with the workloads of administrators and liquidators far lighter than even a normal period.
Among the big names in print, only Bambra Press and Direct Mail & Marketing have hit the skids, with both able to trade on as the administrators look to sell the businesses. Many print businesses should by rights have gone given the dramatic fall in sales but are being kept alive by the government’s life-support stimulus package. And while most are waiting for an upturn or are pivoting into new areas, there are fears unscrupulous operators could damage the market, and that unscrupulous customers could string printers along for payment for six months until they go broke, leaving their creditors empty handed.
The Morrison government will continue to provide regulatory relief for businesses that have been impacted by the Coronavirus crisis by extending temporary insolvency and bankruptcy protections until 31 December. Regulations will be made to extend the temporary increase in the threshold at which creditors can issue a statutory demand on a company, and the time companies have to respond to statutory demands they receive. The changes will also extend the temporary relief for directors from any personal liability for trading while insolvent.