A record number of companies are thought to be trading while insolvent with experts now fearing a major flood of business collapses is imminent.
A record number of companies are thought to be trading while insolvent with experts now fearing a major flood of business collapses is imminent.

Insolvency crisis: Thousands of ‘zombie companies’ trading

Thousands of 'zombie companies' are racking up thousands of dollars in debt ahead of a major flood of business collapses expected in the new year, new data has revealed.

The number of companies falling into administration has fallen to record lows, raising fears thousands are increasing debt while remaining open.

New data from CreditorWatch reveals company administrations are down 59 per cent than the 2019 average.

CreditorWatch CEO Patrick Coghlan said the extension of JobKeeper and Safe Harbour laws which allow businesses to trade while insolvent were "simply delaying this tsunami of collapses" until January.

Mr Coghlan said Safe Harbour measures to be eased off before December to prevent "an astonishing collapse come January".

"While Safe Harbour legislation was critical in stabilising the Australian economy as it went into recession, the measures are now becoming counter-productive because they are propping up companies that should be allowed to fail," he said.

"By extending the moratorium to December, the government is wasting taxpayer money by kicking the can down the road.

"It means that solvent businesses are having to trade with otherwise insolvent debtors, risking their own health, while doomed businesses are able to put off paying creditors or even the ATO."

Queensland has recorded a 25.4 per cent fall in administrations in August on the back of a 38.8 per cent decrease in July.

SM Solvency Accountants Partner Brendan Nixon said the extension of the Safe Harbour laws would create "side effects".

"The measures make company directors less personally accountable and encourage accumulation of company debts at a time when having debts paid on time is critical to the cash flow and solvency of thousands of small to medium enterprise suppliers," he said.

"The measures also make it much more difficult and slower for suppliers who are owed money to take court action to collect from recalcitrant customers."

He said, however, the extension could increase the confidence of business owners in the lead up to Christmas.

"Given the extension of JobKeeper and the ongoing lockdown in Victoria, the extension was somewhat predictable and I consider it likely that the measures may be extended again until at least March 31, 2021," he said.

 

 

 

 

Originally published as Insolvency crisis: Thousands of 'zombie companies' still trading


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