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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.”
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