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SMEs contemplate insolvency options as fears set in

More than 50 per cent of small- to medium-sized businesses are preparing to explore insolvency options over the next six months, a new survey has found.

Business Jotham Lian 30 July 2020
— 2 minute read

An independent survey commissioned by insolvency firm Jirsch Sutherland has found that of the 1,000 business owners and directors surveyed, 51 per cent said they were expecting to explore restructuring or insolvency options in the next six months.

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The prospect of JobKeeper coming to an end was far from their primary concern, with just one in 10 worried about the phase-out of the wage subsidy scheme.

Instead, cash-flow concerns continue to keep business owners up at night, with 36 per cent nominating it as their stressor.

“More businesses fail due to lack of cash flow than due to lack of profit,” said Bradd Morelli, Jirsch Sutherland’s national managing partner.

“If you’re a business owner or director who’s experiencing financial stress, it’s more important than ever to assess your current and future cash-flow situation and revenue streams, particularly taking into considerations when the government’s ‘life raft’ will no longer be there.

“JobKeeper and measures such as the ATO’s cash-boost scheme have certainly made a difference to the medium-term viability of these 20 per cent of businesses.

“That’s great news, but it’s still a good idea that they continue to assess their businesses and plan, both for current conditions and the long term.”

The latest survey results back up the recent findings by the Australian Restructuring Insolvency and Turnaround Association (ARITA), with nearly 40 per cent of its members reporting an increase in “zombie companies” as a result of the current economic supports in place.

Mr Morelli believes a rescinding of the government’s relaxed insolvent trading laws in late September is likely to prompt an insolvency tsunami, with directors urged to take action now.

“The rate of insolvencies is currently over 40 per cent below what we’d normally expect, meaning that many businesses are really just hanging on and ‘protected’ by the temporary insolvent trading laws,” Mr Morelli said.

“As a result of this situation, the ATO isn’t actively winding up companies to pursue debts, WorkCover isn’t winding up companies, and banks have given a moratorium until after the New Year. Therefore, there’s no urgency for a director to make a hard decision, as they’d normally have to do. In essence, many are burying their heads in the sand and not making any decision.

“It’s crucial for company directors to be aware of their responsibilities. While it might not be your fault that your business is in trouble, it is your responsibility. It’s your responsibility to gather all the available information to then make an informed decision — no matter what situation the business is facing.”

Turning to Google over an accountant

The survey also found that of the businesses considering restructuring or insolvency options, 34 per cent said they would turn to Google for insolvency information, compared to 33 per cent who said they would approach their accountant for advice.

With cash-flow concerns likely to weigh against businesses turning to their accountant for help, Chartered Accountants Australia and New Zealand and CPA Australia have now called on the government to fund a voucher scheme for businesses to access professional advice.

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, has also pushed the government to provide a $5,000 voucher for businesses to use with an accredited professional, ranging from an accountant to an insolvency practitioner.

“It’s so important to do your research, and for many, the first step is talking with their accountant — although that’s slightly pipped at the post by Google, our survey shows,” Mr Morelli said.

“Seeking professional advice is vital, as insolvency procedures and restructures can be complex and stressful. It’s important to appoint a practitioner that is a right fit for the business, takes the time to understand a business’s unique issues and recommends a solution that achieves the best possible outcome.”

SMEs contemplate insolvency options as fears set in
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Jotham Lian

Jotham Lian

Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.

Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.

You can email Jotham at: This email address is being protected from spambots. You need JavaScript enabled to view it. 

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