zombie-companies-covid19

The Federal and State Governments have introduced or facilitated the implementation of various stimulus measures to ensure that the economy does not fall off a cliff. One of the most discussed measures is the JobKeeper scheme, initially announced in March 2020 and now extended to March 2021. JobKeeper was and is intended to keep employees on the books of businesses during the pandemic.

Various other measures include provisions relating to the waiving and/or deferment of certain leases and loan payments, a temporary moratorium on recovery proceedings against companies (including changes to statutory demand requirements), and temporary immunity for directors against insolvent trading.

There are signs however, that the measures introduced might be keeping businesses which would otherwise have folded, alive.

Figures provided by the Australian Securities and Investments Commission (ASIC) show that external administration for the financial year 2020 fell by 9.17% compared to the financial year 2019. More alarming perhaps, is the fact that appointments in the June quarter 2020 (April-June 2020) fell by a whopping 42.58% compared to the same quarter in 2019. And appointments in August 2020 dropped by nearly 60%. This is despite the overall economy being in its worst state, possibly since the Great Depression.

The Australian Restructuring Insolvency & Turnaround Association (ARITA) estimates that around 20% of Australian businesses are insolvent or would be insolvent but for the temporary measures introduced. Some of these companies, colloquially known as ‘zombie companies’, are kept afloat by the support measures introduced and have no prospect of recovery.

The support measures currently in place are designed to keep businesses in hibernation in hopes that they would be in a position to kick start the economy when the current situation blows over. They do not solve the problems facing zombie companies, nor do they eliminate debts for other businesses which have accrued during COVID-19.

Contact Us For Assistance

If you want to ensure the survival of your business post COVID-19, now is the best time to lay the foundations. Take this opportunity to recalibrate and restructure your business

So, please get in touch with us on 1300 906 966 or send us an email to arrange a free confidential initial discussion. Our team of consultants is led by specialists who are Registered Liquidators members of Chartered Accountants Australia and New Zealand, ARITA and the AIIP.

Posted on 26-10-20 in Business insolvency, Turnaround and Restructuring.