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.”
About the author
About the author
Economy
Roaring ’20s or wasted decade: Budget to decide
Australia’s economy faces either a decade marred by ‘epic policy failures’, with stagnant economic growth, or a scenario reminiscent of the roaring 1920s, with the upcoming budget critical to...Read more
Economy
Calls for gender lens on budget and ‘real jobs’ for young people ahead of 11 May
A lot of hope is resting on the upcoming budget after the Treasurer reaffirmed that fiscal strategy will take a backseat as economic recovery becomes the focal point for this year. ...Read more
Economy
Australian economy looks to make up for lost time
Policymakers will use the upcoming budget and record low rates to make up for a lost year, an industry expert has said. ...Read more
Economy
Treasury announces childcare boost ahead of budget
The Morrison government has unveiled another key piece of budget legislation, with the opposition labelling it a ‘missed opportunity’ for working mothers. ...Read more
Economy
Deloitte tips Australia will need to cut spending and raise ‘some’ taxes shortly
“Australians do need to realise that there’s an eventual bill to pay – it isn’t nearly as large as many seem to fear, but nor is it nothing,” Deloitte has warned. ...Read more
Economy
4 strategies to beat inflation
Government policies around the world to lift employment rates will lead to higher inflation, meaning investors will need to change their strategies, an industry expert has revealed. ...Read more
Economy
‘Fancy spin and slick marketing’: Pre-budget speech fails to impress
Treasurer Josh Frydenberg has failed to commit to a strategy, walking away from an austerity budget on 11 May but again relying on businesses to do the heavy lifting, his pre-budget speech revealed. ...Read more
Economy
‘This will be another pandemic budget’: Frydenberg
The Australian government will use next month’s budget to target Australia’s unemployment rate and reduce taxes paid as it looks to support the economy post the COVID-19 downturn. ...Read more
Has the property market reached its peak; Biden’s climate summit and our sharemarket, and the upcoming budget
Listen now
Is the market overheating; should ETFs take your fancy, and what’s happening to the low and middle income tax offset?
Listen now
Home values up 30% (or are they); NFTs taking the world by storm, and why Keating thinks Aussies will be ‘poor’ in retirement
Listen now
Raging floods, the tech stock bubble and the ongoing SG debate
Listen now
Economy
Roaring ’20s or wasted decade: Budget to decide
Australia’s economy faces either a decade marred by ‘epic policy failures’, with stagnant economic growth, or a scenario reminiscent of the roaring 1920s, with the upcoming budget critical to...Read more
Economy
Calls for gender lens on budget and ‘real jobs’ for young people ahead of 11 May
A lot of hope is resting on the upcoming budget after the Treasurer reaffirmed that fiscal strategy will take a backseat as economic recovery becomes the focal point for this year. ...Read more
Economy
Australian economy looks to make up for lost time
Policymakers will use the upcoming budget and record low rates to make up for a lost year, an industry expert has said. ...Read more
Economy
Treasury announces childcare boost ahead of budget
The Morrison government has unveiled another key piece of budget legislation, with the opposition labelling it a ‘missed opportunity’ for working mothers. ...Read more
Economy
Deloitte tips Australia will need to cut spending and raise ‘some’ taxes shortly
“Australians do need to realise that there’s an eventual bill to pay – it isn’t nearly as large as many seem to fear, but nor is it nothing,” Deloitte has warned. ...Read more
Economy
4 strategies to beat inflation
Government policies around the world to lift employment rates will lead to higher inflation, meaning investors will need to change their strategies, an industry expert has revealed. ...Read more
Economy
‘Fancy spin and slick marketing’: Pre-budget speech fails to impress
Treasurer Josh Frydenberg has failed to commit to a strategy, walking away from an austerity budget on 11 May but again relying on businesses to do the heavy lifting, his pre-budget speech revealed. ...Read more
Economy
‘This will be another pandemic budget’: Frydenberg
The Australian government will use next month’s budget to target Australia’s unemployment rate and reduce taxes paid as it looks to support the economy post the COVID-19 downturn. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
