Hundreds of ‘zombie’ businesses to fold
There are renewed fears that hundreds of Australian companies could shut their doors in September when the Government pulls much of its emergency coronavirus stimulus.
At the moment, the JobKeeper wage subsidy is due to end in late September, which is expected to spark a jump in the number of business insolvencies.
That's according to this month's Finder RBA Cash Rate Survey, which surveyed 43 experts and economists on the state of the Australian economy.
According to the survey, several investment and credit-reporting firms have warned that "zombie companies" - those artificially propped up by temporary pandemic stimulus - could collapse over the next six months as stimulus measures are reduced.
Australian credit reporting agency CreditorWatch revealed that around 550 insolvency actions were issued in April and May this year due to government stimulus relieving some pressure.
But Graham Cooke, insights manager at Finder, said many more are on the way this quarter.
"At this point, it is more of a question of 'when' than 'if' many companies become insolvent," he said.
"Referring to them as 'zombies' kept alive only by taxpayer money is a convenient way to remove the human component of the coming pain.
"The people affected will not be the undead, but they will be those who were trying to cross the so-called 'bridge to the other side' only to find that they ran out of time."
Mr Cooke noted that around 800 insolvency actions were initiated in both February and March.
"Economists aren't predicting an enormous influx of insolvencies right away in September, but the 800 prediction is deceptive because many expect the worst to come in the months that follow," he said.
CreditorWatch CEO Patrick Coghlan said while there had been some positive economic signs recently, more pain was a certainty.
"While positive sentiment has increased in recent weeks as the economy and trade starts to open up, the big concern is what happens in and around September when the stimulus … packages potentially come to an end - namely, JobKeeper, JobSeeker, rental abatement, a home loan repayment reprieve, insolvency/bankruptcy legislation and safe harbour changes," he said.
"There will be a serious shock to the economy as people are once again forced to start paying the bills and stop receiving government incentives.
"At this time, business owners will need to start taking a serious look into the mirror and ask themselves whether their business has the capacity to survive. Currently, there are plenty of businesses out there that should be initiating wind up or at least engaging with a restructuring specialist or banker."
Several experts included in the Finder survey - including Rebecca Cassells from Bankwest Curtin Economics Centre and Saul Eslake of Corinna Economic Advisory - believe there could potentially be a drop in insolvencies in September, with more to come in the following months once banks start pursuing insolvency cases again.
But Rich Harvey, CEO and founder of Propertybuyer, said he expects 1400 insolvencies in September as many companies will struggle to "sustain their cost base without government support and low revenue".
The "zombie" problem was first raised in May by the Deloitte Access Economics Budget monitor, which argued zombie companies created by JobKeeper were problematic for the wider economy - although withdrawing support altogether was not the solution.
"One pandemic is enough for a lifetime and there is a risk that JobKeeper, as a measure designed to preserve jobs, could eventually create 'zombie firms' that neither fully recover, but don't go bankrupt. This would slow the broader recovery. But so too would a sudden stop to all support,'' the report stated.
At the time, the sentiment was echoed by Queensland University of Technology retail expert Dr Gary Mortimer, who told news.com.au zombie firms were likely a particular problem within the retail sector, which was already struggling well before the pandemic.
"As COVID-19 restrictions have impacted the retail sector with many retailers voluntarily closing their stores, it's certainly reasonable to consider that some retailers were potentially already on their last legs anyhow," he said, adding that the withdrawal of government support would likely cause many retail brands to "fall by the wayside".