Powered by momentummedia
nestegg logo
Powered by momentummedia
Powered by momentummedia
nestegg logo
nestegg logo

 

 

Invest

Is government support leading to zombie firms?

  • July 17 2020
  • Share

Invest

Is government support leading to zombie firms?

By Cameron Micallef
July 17 2020

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.

government support leading to zombie firms

Is government support leading to zombie firms?

author image
  • July 17 2020
  • Share

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.

government support leading to zombie firms

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. 

Advertisement
Advertisement

“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.”

Is government support leading to zombie firms?
government support leading to zombie firms
nestegg logo

Forward this article to a friend. Follow us on Linkedin. Join us on Facebook. Find us on Twitter for the latest updates
Rate the article

About the author

author image

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

more on this topic

more on this topic

From the web

Recommended by Spike Native Network

More articles

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.