COVID-19 – Will There Be a Tsunami of Insolvencies?

by | Mar 9, 2021

COVID19 Insolvency Wave – To be or not to be?

 

On March 12 2020 the World Health organisation declared Covid19 a pandemic. In May 2020, Australia had 7,195 active cases of COVID nationally and Australian businesses were facing an uncertain future. Various media reports from the start of the pandemic highlighted the significant financial pressures facing many businesses and a wave of insolvencies was predicted.

Twelve months on, the wave of predicted insolvencies is yet to eventuate with data from the Australian Securities and Investments Commission  indicating that insolvencies fell almost 50% for the period 1 July 2020 to 31 December 2021. These insolvencies have been staved off by:

  • The federal government tweaking insolvency laws at the height of the pandemic to assist businesses in staving off anxious creditors, whilst protecting directors from insolvent trading claims;
  • Significant economic stimulus measures like the “Cashflow Boost” scheme and Job Keeper assisting businesses with reduce cashflow;
  • The Australian Taxation Office delaying debt collection and enforcement processes; and
  • Many businesses successfully pivoting their business, including successfully operating online, to replace revenue lost as a result of the various lockdowns.

In addition, the Federal government has introduced a simplified liquidation process and small business restructuring scheme to allow businesses to be wound up or restructured in a cost effective manner.

Whilst many businesses have made it through the last 12 months, many are likely to be facing headwinds caused by:

  • Winding back of the limitations placed on the Creditors Statutory Demand process, meaning creditors are now likely to pursue further debt collection processes;
  • Increased debt collection and enforcement efforts from the ATO;
  • Industries effected by ongoing border restrictions (tourism, higher education,
  • Inability to reduce operating overheads to right size the business to match current revenue levels.

Whether the COVID -19 Insolvency Tsunami will eventuate is difficult to predict but Australian Businesses have shown resilience in this difficult time.

Feel free to contact  our office  if you would like any further information or for an obligation-free and confidential discussion if your business is experiencing financial difficulties or you would like to discuss restructuring options.


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Chan & Naylor
Chan & Naylor

Chan & Naylor is Australia’s leading property, business, tax-accounting & wealth advisory group with offices nationwide.

The Chan & Naylor Group has national offices in South West Sydney, Sydney CBD, Pymble and Parramatta in New South Wales, Wheelers Hill, Melbourne and Moonee Ponds in Victoria, Brisbane in Queensland, and East Perth in Western Australia that can assist you with your accounting needs. Contact us here today.

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