Insolvency tsunami fails to materialise for businesses, survey finds

Insolvency tsunami fails to materialise for businesses, survey finds

The rate of insolvencies for Australian businesses are currently running at less than half pre-COVID levels, but according to a survey by KordaMentha, that could be due to extended lockdowns and border closures.

The 2021 KordaMentha-TMA Australia Turnaround Survey has revealed that despite the winding back of government support, external administrations are still running at historical lows despite concerns last year that there would be a blowout in numbers.

The survey, which interviewed insolvency professionals around Australia, revealed a small increase in formal insolvencies early this calendar year, although this was short-lived.

Lockdowns and border closures have been cited as a reason for a fall in insolvency and turnaround inquiries, although the survey found most respondents also credited government support for avoiding an insolvency tsunami. Insolvency numbers this year are running at an average of 363 a month, down 47 per cent from a pre-COVID average of 679 a month.

However, conditions remain tough with border closures, with recruitment and supply chain delays cited as the most significant pressures expected by businesses nationally in the year ahead.

The survey found that 46 per cent of respondents thought border closures were the biggest issue for businesses, with 34 per cent expecting recruitment problems and 32 per cent concerned about supply chain delays.

“While the turnaround and insolvency tsunami did not arrive as anticipated this year, concern around the impact of COVID-19 on Australian businesses has not abated; it has evolved,” says Maria O’Brien, president of TMA Australia and head of insolvency practice Baker McKenzie.

“Reopening state and international borders is crucial to protecting businesses of all sizes,” she says.

Despite crediting government stimulus for averting an insolvency crisis this year, a majority of insolvency professionals (66 per cent) believe there has not been enough government support for SMEs during the latest extended lockdowns in NSW and Victoria.

Meanwhile, access to cash and rising costs have taken a back seat for most businesses who currently perceive them as secondary pressures.

“Access to cash is not presenting a challenge to Australian businesses right now,” says Chris Martin, partner at KordaMentha.

“This is likely to be due to the success of government stimulus and availability of funding options which have been better over the last 12 months.”

While 18 per cent of businesses are finding access to finance from their existing lenders tougher this year, 33 per cent of respondents say conditions have improved.

In a sign of competitive market conditions for the banking sector, 53 per cent say businesses have found it easier to access finance from new lenders, compared with 8 per cent who say this has become tougher.

Looking ahead, most turnaround and insolvency respondents see vaccination targets as essential to boosting demand for their services this year, with 77 per cent forecasting an increase once targets are met.

However, the good news is that insolvency experts are not expecting a surge in formal insolvency appointments, but rather an increase in advisory services to help businesses navigate the new business environment.

Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support

How communications technology can raise the bar on customer service, employee experience
Partner Content
From capturing feedback early to providing messages with a higher rate of cut-through, ...
Advertisement

Related Stories

Car subscription software company Loopit eyes global markets after $3.6m seed round

Car subscription software company Loopit eyes global markets after $3.6m seed round

In a bid to enter new global markets and capitalise on the growing ...

Fashion-tech startup Citizen Wolf uses data to tailor tees, alleviate landfill

Fashion-tech startup Citizen Wolf uses data to tailor tees, alleviate landfill

As a consequence of our addiction to fast fashion, Australia sends ...

Apollo to divest large share of motorhome fleet to get Tourism Holdings merger over the line

Apollo to divest large share of motorhome fleet to get Tourism Holdings merger over the line

In an effort to appease Australian and New Zealand regulator concer...

Dexus awards John Holland building contract in $2.1b Waterfront Brisbane project

Dexus awards John Holland building contract in $2.1b Waterfront Brisbane project

After securing an $830 million contract from Dexus (ASX: DXS), Melb...