Invest
Administrations rise as zombie firms accept reality
Business administrations have started to rise for the first time since June, with Victoria and Queensland recording the biggest spikes, new data from CreditorWatch has shown.
Administrations rise as zombie firms accept reality
Business administrations have started to rise for the first time since June, with Victoria and Queensland recording the biggest spikes, new data from CreditorWatch has shown.
Business defaults also rose for the first time since May this year, increasing by 23 per cent in September.
The monthly CreditorWatch Business Risk Review found business administrations in Victoria rising by 23.8 per cent, following a 49.3 per cent drop in August, while Queensland recorded a 24.1 per cent increase after a decrease of 25.4 per cent in August.
In contrast, NSW recorded a further 1.6 per cent decrease in business administrations off the back of a 34.3 per cent drop in August.
CreditorWatch chief executive Patrick Coghlan said the timing of the rise in administrations with the end of the first round of JobKeeper suggests that some “zombie” companies are now waking up to the reality of their situation.
“September’s increase in default and administration rates does indicate that some businesses which have been reliant on government support are starting to accept the reality of their situation and are taking steps to settle with their creditors,” Mr Coghlan said.
“What we don’t want to see is businesses that are doomed to fail continuing to operate and taking healthy companies down with them.
“The long-term trend is that zombie companies will continue to survive on government support, and so, the next six months are crucial in determining what position we start our economic recovery from.”
While the government has announced an extension of insolvency relief measures to the end of the year, other support measures such as JobKeeper and loan repayment deferrals have started winding up.
The Reserve Bank of Australia believes government support has helped save 4,600 businesses from failing this year, with another 6,600 businesses to be saved once all measures are tapered off.
The RBA’s biannual Financial Stability Review has estimated that if the aggregate 3 per cent decline in 2019-20 revenue fails to recover in the current financial year, a further 5,200 businesses would fail in addition to the typical 15,000 to 20,000 firms that fail each year.
“Business failures will increase, although there is a high degree of uncertainty about the magnitude and timing,” the RBA said.
“It will depend on the strength of the economic recovery, which will be influenced by the duration and severity of future COVID-19-related disruptions, and the timing and extent of the unwinding of the various support measures.
“Bankruptcies and insolvencies are currently very low because of the income support, loan repayment deferrals and temporary insolvency relief.
“Business failures have flow-on effects to their creditors, both financial institutions and other businesses, and their employees.”
Payment times decrease in some sectors
Despite the rise in business administrations, average payment times were down by 10 per cent across all industries in September.
Payment times, however, remain high, with a 222 per cent year-on-year increase on average.
While industries like information media and telecommunications saw payment times fall by 30 days, the financial sector saw an increase of nine days, bringing payment time to a 62-day average.
“For a signal of how Australian businesses are faring, payment times provide a glaring picture of how tough the environment is, especially when juxtaposed against 2019,” said CreditorWatch chief economist Harley Dale.
“Payment times still remain too high, and some sectors are being particularly stubborn, such as the financial services and insurance sector, which jumped up in September, and the transport, postal and warehousing sector, which remains at a staggering 90 days.
“As government support is rescinded, which way this metric tracks will be crucial in determining how well Australian firms fare in our new economic world.”
Economy
‘Aussies to keep economy ticking with $200bn in savings’
The government is counting on Aussies to use their savings to drive economic recovery once temporary support measures are wound back at the end of March. ...Read more
Economy
Business improves but COVID threat remains
The Australian economy continues to show signs of life, with businesses’ payment times improving despite recent outbreaks of COVID-19, new research has revealed. ...Read more
Economy
10 impacts the US ‘blue wave’ will have on investors
With the US Senate run-off falling to the Democrats, a new blue wave is spurring optimism for investors, a chief strategist has said. ...Read more
Economy
Frydenberg confident vaccine rollout will boost the economy
The economy and the budget are expected to reap the benefits of the earlier than planned vaccine rollout, following a series of unexpected lockdowns which have already put a dent on the government’s...Read more
Economy
Australian economy back to pre-COVID levels by 2021
The Australian economy is expected to bounce back to pre-COVID levels by the end of 2021 as wins on the health front and aggressive government policy have limited damage while boosting business and co...Read more
Economy
Economy to recover from weakest year since WWII
The global economy is expected to recover in 2021 following the weakest year since World War II, with fiscal and monetary policy continuing to support world economies, a big four bank has forecasted. ...Read more
Economy
‘Lagging the world’: Australia’s fintechs grew despite lack of incentives
Australia’s fintech sector continues to grow, despite the challenges of the COVID-19 recession, new research has shown. ...Read more
Economy
The COVID stories that caught your attention in 2020
2020 was far from an ordinary year. Bushfires, floods and a global pandemic have upended the lives of millions of Aussies as the economy crashed and unemployment soared. ...Read more
Economy
‘Aussies to keep economy ticking with $200bn in savings’
The government is counting on Aussies to use their savings to drive economic recovery once temporary support measures are wound back at the end of March. ...Read more
Economy
Business improves but COVID threat remains
The Australian economy continues to show signs of life, with businesses’ payment times improving despite recent outbreaks of COVID-19, new research has revealed. ...Read more
Economy
10 impacts the US ‘blue wave’ will have on investors
With the US Senate run-off falling to the Democrats, a new blue wave is spurring optimism for investors, a chief strategist has said. ...Read more
Economy
Frydenberg confident vaccine rollout will boost the economy
The economy and the budget are expected to reap the benefits of the earlier than planned vaccine rollout, following a series of unexpected lockdowns which have already put a dent on the government’s...Read more
Economy
Australian economy back to pre-COVID levels by 2021
The Australian economy is expected to bounce back to pre-COVID levels by the end of 2021 as wins on the health front and aggressive government policy have limited damage while boosting business and co...Read more
Economy
Economy to recover from weakest year since WWII
The global economy is expected to recover in 2021 following the weakest year since World War II, with fiscal and monetary policy continuing to support world economies, a big four bank has forecasted. ...Read more
Economy
‘Lagging the world’: Australia’s fintechs grew despite lack of incentives
Australia’s fintech sector continues to grow, despite the challenges of the COVID-19 recession, new research has shown. ...Read more
Economy
The COVID stories that caught your attention in 2020
2020 was far from an ordinary year. Bushfires, floods and a global pandemic have upended the lives of millions of Aussies as the economy crashed and unemployment soared. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
