Navigating through COVID-19 induced financial distress: seek help early to optimise outcomes
[fusion_builder_container hundred_percent=”no” hundred_percent_height=”no” hundred_percent_height_scroll=”no” hundred_percent_height_center_content=”yes” equal_height_columns=”no” menu_anchor=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” status=”published” publish_date=”” class=”” id=”” background_color=”” background_image=”” background_position=”center center” background_repeat=”no-repeat” fade=”no” background_parallax=”none” enable_mobile=”no” parallax_speed=”0.3″ video_mp4=”” video_webm=”” video_ogv=”” video_url=”” video_aspect_ratio=”16:9″ video_loop=”yes” video_mute=”yes” video_preview_image=”” border_size=”” border_color=”” border_style=”solid” margin_top=”” margin_bottom=”” padding_top=”” padding_right=”” padding_bottom=”” padding_left=””][fusion_builder_row][fusion_builder_column type=”1_1″ layout=”1_1″ spacing=”” center_content=”no” link=”” target=”_self” min_height=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” class=”” id=”” background_color=”” background_image=”” background_image_id=”” background_position=”left top” background_repeat=”no-repeat” hover_type=”none” border_size=”0″ border_color=”” border_style=”solid” border_position=”all” border_radius=”” box_shadow=”no” dimension_box_shadow=”” box_shadow_blur=”0″ box_shadow_spread=”0″ box_shadow_color=”” box_shadow_style=”” padding_top=”” padding_right=”” padding_bottom=”” padding_left=”” margin_top=”” margin_bottom=”” animation_type=”” animation_direction=”left” animation_speed=”0.3″ animation_offset=”” last=”no”][fusion_text columns=”” column_min_width=”” column_spacing=”” rule_style=”default” rule_size=”” rule_color=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” class=”” id=””]
Just as the economy was gradually reopening, the resurgence of COVID-19 has compelled governments across Australia to impose tough social restrictions once more. Already reeling from the first lockdown, many cash-strapped businesses will struggle to maintain adequate working capital and stay afloat, especially with the scaling down of JobKeeper payments and other government support measures.
Anxiety over cash flow is pervasive among business owners. Of the more than 1000 SME directors surveyed in an independent research recently conducted, 36 percent cited cash flow and turnover as their top cause of concern. Such concerns translate into 51 percent of respondents saying that they were either currently exploring restructuring or insolvency options or were expecting to do so within the next six months.
This points towards a considerable upsurge in corporate insolvencies in the coming months, in line with the assessment of an overwhelming majority of insolvency practitioners. According to a survey conducted in June by the Australian Restructuring Insolvency and Turnaround Association (ARITA), 40% of insolvency professionals reported observing an increase in ‘zombie companies’, referring to unviable businesses that would otherwise have gone through the insolvency process but were sustained by the government’s support programs. Due to a significant decline in insolvency appointments since April 2020, a backlog of the so-called ‘deferred insolvencies’ resulted in 74% of respondents observing that it is either likely or very likely that there will be a major spike in insolvencies as government support measures are gradually eased and eventually withdrawn.
While the extension of JobKeeper payments to March 2021 may have prevented many businesses falling off a cliff, the underlying problems of financial viability in a post-COVID economy remain unaddressed. Moreover, the relaxed corporate insolvency laws, which provided a moratorium shielding financially distressed businesses from being wound up by creditors and regulatory bodies is due to be rescinded by 25 September 2020. Although certain aspects of the scheme may be extended, directors of distressed companies should take stock of the financial position of their businesses and be prepared and willing to make the tough decisions in line with their duties under the Corporations Act 2001. By simply ignoring the problems and delaying the inevitable, directors of financially distressed companies will end up with significant additional personal liabilities in relation to insolvent trading and under the director penalty notice regime.
If your business is facing financial difficulties and has been impacted by COVID-19, it is critical to promptly seek professional advice and explore the available options to turnaround or restructure the business. Apart from giving the business the best chance to survive and continue into the future, proactively addressing the issues and taking the necessary measures pursuant to the safe harbour protection regime would assist the company to avoid being wound up and the directors would avoid additional personal liabilities.
The team at Collins Wentworth are experienced in business financial matters. If you have concerns about the financial position of your business and wish to know more about how we can assist you, contact us today.
[/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]
