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Business closures ‘inevitable’ as defaults rise


Accountants have been urged to broach the “taboo” subject of business closures with their clients as extended lockdowns begin to sound the death knell for businesses.

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New data from CreditorWatch has revealed that business defaults increased by 20 per cent last month, averaging a 10 per cent increase over the last three months.

While defaults only rose by 0.6 per cent compared to August last year, the credit reporting agency notes that it is the first rise since May 2020 and a sign of an increasingly rocky road ahead for businesses.

“We’re really in an artificial economy due to the lockdowns; it’s not a normal trading environment,” said Harley Dale, chief economist at CreditorWatch.


“As the duration of lockdowns increases so too does business uncertainty. This is the biggest enemy we confront through the remainder of 2021.”

With accountants being relied on heavily to assist business clients with grant applications and ongoing eligibility retests, CPA Australia senior manager of business policy, Gavan Ord, believes it might be an opportune time for accountants to raise the idea of business closure as an appropriate strategy for struggling clients.

“Accountants usually have the measure of their small business clients,” said Mr Ord. “They’ll have a good feel for which businesses will make it, which ones are line ball, and those that won’t.

“If you’ve got a client who’s just buying time through this short period of government support, you should raise the possibility of exiting the business and the best way to achieve that exit.

“It’s much better for your client to hear this message while they’re regularly in contact with you as part of complying with grant requirements.”

With Sydney and Melbourne facing ongoing lockdowns, credit inquiries dropped by 19 per cent in August, marking the first negative result since September last year.

Trade receivables also fell by 12.5 per cent, indicating that many businesses are unable to trade or are opting to sit in a holding pattern until the economy reopens.

CreditorWatch chief executive Patrick Coghlan believes that while support packages introduced by state governments have prevented widespread closures, external administrations will “inevitably rise” as lockdowns lift.

It’s a sentiment shared by Mr Ord, who said some business owners might be hanging on to false hope that they can snap back once lockdowns ease.

“In reality, it’s going to be a very long way back for some,” said Mr Ord. “Businesses serving office workers in CBDs, for example, are unlikely to ever see a return pre-COVID levels of foot traffic.

“Business owners who exit methodically are more likely to benefit financially from shutting their business and be ready for whatever comes next. They are also more likely to be able to handle the emotional challenges that can come from business closure.

“No one’s really talking about business closure; it’s like it’s a taboo subject. But now [maybe] an opportune time for accountants to have this discussion with their business clients.”

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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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