A deluge of insolvencies is on the horizon with JobKeeper ending in a week, impacting on the cash flow of businesses and slashing the spending power of hundreds of thousands of Australians.
Meanwhile, the Government has unveiled a $1.2 billion stimulus package aimed at increasing domestic tourism, which many won’t have the cash to take advantage of. This could be of detriment to businesses that increase stock and rostered hours only to find there’s little to no increase in patronage.
Combine this with the recent expiry of the temporary insolvency measures and changes to the insolvency framework and we’re likely looking at a significant spike in the number of failed businesses very soon.
This will drive an increase in liquidations and leave many commercial landlords without tenants.
And while recent Australian Prudential Regulation Authority (APRA) data shows that loan deferral rates are basically back at the level they were pre-COVID, the Victorian deferral rate is sitting at double the rest of Australia.
Garth O’Connor Price, Principal, Restructuring and Insolvency at William Buck said borrowers should understand that banks will start commencing strategic management of non-performing loans moving forward.
“Financiers have flagged that they will not stand by as a business suffers a death by a thousand cuts.
“Directors of COVID affected businesses may soon be forced to confront the fact that they no longer have their financier’s support and when this time comes you want someone in your corner with the experience and knowledge to fight the uphill battle faced by a business in this position.”
Meanwhile, the Australian Taxation Office is beginning to send letters to their debtors noting that they are “re-engaging” with their debt. This marks the first step post COVID towards restoring normal debtor management behaviour of a major stakeholder in most SME businesses.
“The ATO is a sophisticated and well-resourced creditor. This presents an opportunity for a distressed business owner to proactively engage with the ATO to negotiate a suitable outcome. On the flip side, it also means if they are not satisfied with the level of transparency, it will not hesitate to use one of the many tools of recovery they have at their disposal”.
Garth urged that the key takeaway here is to seek advice as early as possible. This will give your business the best chance of survival and will also protect your own financial liability if you’re a director of a struggling company or one that might be affected by the failure of others.
“Without help now, in six months’ time, liquidation could be the only option,” he warned.
William Buck recently shot a Business Health and Recovery video series, explaining how the firm approaches engagement with a struggling business and leverages its integrated service model for the most effective restructure, sale or revival of a business.
The three-part video series can be viewed here.