Invest
Is government support leading to zombie firms?
A number of firms are surviving due to government support, but rising payment times show that many zombie firms are still struggling to keep their head above water.
Is government support leading to zombie firms?
A number of firms are surviving due to government support, but rising payment times show that many zombie firms are still struggling to keep their head above water.
Data compiled by CreditorWatch showed a 17 per cent decrease in court actions and a 25 per cent decrease in payment defaults.
“While at first glance, a decrease in business administrations, court actions and defaults seems to indicate a rebounding economy – however, when we take a deeper look, it’s clear that trouble is brewing and that businesses are struggling with significant cash flow issues,” Mr Coghlan said.
“Payments in June were overdue by an average of 49 days across all industries, 342 per cent higher than the June 2019 figure.”
Payments in construction increased to 53 days overdue, while electricity, gas, water and waste services increased to 37 days overdue and rental and real estate services increased to 37 days overdue – resulting in a “significant jump” in the number of businesses coming out of hibernation and entering administration as the fiscal cliff approaches.
“Until now, the priority has been to keep as many businesses as possible above water,” Mr Coghlan said.
“Come September, however, support packages will be lifted and we’ll find that a substantial number of ‘zombie businesses’ have been kept artificially afloat.
“Banks will not be prepared to prop unviable companies and nor should taxpayers; however, the government can ease the impending insolvency curve by lifting [safe harbour] measures gradually and forming an administration service to support the industry.”
CreditorWatch data showed that payment delays give the game away. Payments in June were overdue by an average of 49 days across all industries, 342 per cent higher than the June 2019 figure. The growth was even greater across industries like arts and recreation (up 900 per cent) and retail (up 367 per cent), suggesting that behind the scenes, SMEs are struggling to make ends meet.
“As lockdown restrictions impeded cash flow, the measures announced by the government saved jobs and enabled firms that would otherwise have closed to hang on,” Mr Coghlan said.
“This could be a stay of execution for struggling businesses, and we should prepare for a double whammy of administrations when the measures are lifted in September.”
RELATED ARTICLES
About the author
About the author
Economy
Economist calls for July RBA rate cut following inflation data
An economist from State Street Global Advisors has called for the Reserve Bank of Australia to cut interest rates in July following today's Consumer Price Index data for June. Read more
Economy
GDP data prompts economist to predict faster RBA rate cuts
Australia's latest GDP growth data has come in significantly below expectations, prompting an economist to suggest the Reserve Bank may need to ease monetary policy more aggressively. Read more
Economy
Global markets face turbulent start amid tariff concerns, but outlook remains cautious
Global equity and bond markets have experienced a turbulent start to 2025, primarily due to concerns that a potential tariff-driven trade war could heighten inflation and recession risks. Read more
Economy
RBA may cut rates faster if GDP data disappoints, economists say
The Reserve Bank of Australia may cut interest rates more quickly if next week's GDP data disappoints, economists said following today's consumer price index data for May. Read more
Economy
RBA delivers widely expected rate cut as inflation optimism balances global uncertainty
The Reserve Bank of Australia has cut the cash rate by 25 basis points, delivering on widespread market expectations while signalling a clearer directional shift towards less restrictive monetary ...Read more
Economy
Economist warns strong jobs data may delay further RBA rate cuts
Strong employment growth in April has put expectations for multiple interest rate cuts at risk, though upcoming economic data may clarify the need for lower rates, according to State Street Global ...Read more
Economy
Australian inflation continues downward trend, nearing RBA target
The Australian Bureau of Statistics (ABS) has reported that the Consumer Price Index (CPI) rose 2.7 per cent in the year to August, down from 3.5 per cent in July and 3.8 per cent in June. Read more
Economy
UK markets poised for gains after election, global geopolitical risks remain
Chris Iggo, Chief Investment Officer at AXA Investment Managers, has provided an optimistic outlook for UK markets following the recent general election, while cautioning about ongoing global ...Read more
Economy
Economist calls for July RBA rate cut following inflation data
An economist from State Street Global Advisors has called for the Reserve Bank of Australia to cut interest rates in July following today's Consumer Price Index data for June. Read more
Economy
GDP data prompts economist to predict faster RBA rate cuts
Australia's latest GDP growth data has come in significantly below expectations, prompting an economist to suggest the Reserve Bank may need to ease monetary policy more aggressively. Read more
Economy
Global markets face turbulent start amid tariff concerns, but outlook remains cautious
Global equity and bond markets have experienced a turbulent start to 2025, primarily due to concerns that a potential tariff-driven trade war could heighten inflation and recession risks. Read more
Economy
RBA may cut rates faster if GDP data disappoints, economists say
The Reserve Bank of Australia may cut interest rates more quickly if next week's GDP data disappoints, economists said following today's consumer price index data for May. Read more
Economy
RBA delivers widely expected rate cut as inflation optimism balances global uncertainty
The Reserve Bank of Australia has cut the cash rate by 25 basis points, delivering on widespread market expectations while signalling a clearer directional shift towards less restrictive monetary ...Read more
Economy
Economist warns strong jobs data may delay further RBA rate cuts
Strong employment growth in April has put expectations for multiple interest rate cuts at risk, though upcoming economic data may clarify the need for lower rates, according to State Street Global ...Read more
Economy
Australian inflation continues downward trend, nearing RBA target
The Australian Bureau of Statistics (ABS) has reported that the Consumer Price Index (CPI) rose 2.7 per cent in the year to August, down from 3.5 per cent in July and 3.8 per cent in June. Read more
Economy
UK markets poised for gains after election, global geopolitical risks remain
Chris Iggo, Chief Investment Officer at AXA Investment Managers, has provided an optimistic outlook for UK markets following the recent general election, while cautioning about ongoing global ...Read more
