As JobKeeper ends, Australia can expect more than 5,000 insolvencies as in the coming three months, according to administrations experts CreditorWatch.
They released a white paper this week that charted the state of Australian insolvencies at the start of 2021, with a particular focus on how many businesses might shutter due to the pandemic, the end of JobKeeper and wider economic trends.
In particular, CreditorWatch focussed on the idea of ‘zombie’ businesses, which have been propped up by government stimulus plans such as JobKeeper, but will likely fall over now that the safety net has been removed.
“CreditorWatch data has shown that increased government support during the COVID pandemic, largely the JobKeeper subsidy, has created hundreds of ‘zombie businesses’ that would not have otherwise had the cashflow to stand on their own two feet,” said Patrick Coghlan, CEO of CreditorWatch. “Now this stimuli has been wound back, these ‘zombie companies' will be made to surface so we can assess who is commercially viable and who isn’t.”
Though there is a new SME Loan Scheme in place to aid failing businesses, doubt has been cast on how effective it will actually be at routing cash to those in need. Inevitably, some SMEs will not get the financing and thus enter administration.
“The end of JobKeeper support will be a difficult but necessary transition,” said Coghlan. “However, there are still many government initiatives and means of support - such as the extension of the SME Loan Guarantee Scheme - which will be available for businesses that are viable and need access to finance.”
Though some will fail, Coghlan explain that this is actually good for the economy as a whole.
“We need to get back to at least pre-COVID administration levels and away from the synthetic environment we've lived in for the past 12 months,” he said. “Businesses need to be allowed to fail; that's how the economy works. It means companies that shouldn't be operating aren't pulling down the rest of the economy. These next few months will all be about returning to some level of ‘normality’ and moving away from the necessary but artificial world that was created to keep businesses afloat at the height of the pandemic.”