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Economic Rebound or Trap?
There are a number of positive signs that Australia’s economy has rebounded from the significant impacts of Covid.
1. The Stock Market has returned to February 2020 record highs.
2. House pricing has risen this year.
3.Unemployment rates are beginning to decrease from the highs experienced last July.
However, amid the positive economic outlook lies a number of uncertainties that may continue to be disruptive for business. Most obviously is the ongoing Covid Pandemic, which despite being relatively under control within our borders, continues to run rampant internationally. Latest information provided by the Government indicates international travel will not occur (on a large scale) in 2021. The ongoing impact this will have on a number of key Australian Industries (tourism, education etc) has the potential to flow into broader economic challenges.
Perhaps more significantly, is the number of Government policies, swiftly implemented to protect businesses and the economy, which are now being phased out. This unwinding of Government support has the potential to put many businesses under financial pressure, and could result in an increase in businesses becoming insolvent, or going into administration.
Daniel Turk, Partner – Commerical at Turks Legal, outlines the upcoming threats to business:
- The moratorium against eviction by landlords of tenants affected by Covid has now ended. Tenants who are unable to pay lease payments will likely be
forced out of their premises. Expect to see more vacancies;
- Jobkeeper payments to business suffering a COVID downturn will end this month. These payments have been a substantial assistance to businesses with
easy access to immediate government cash on a monthly basis with relatively little paperwork. As this cash support comes to an end expect an increase
in defaulting creditors and subsequent insolvencies;
- The Government put in place measures to stop creditors winding up defaulting businesses by extending the period for compliance with creditor’s statutory
demands for non-payment of debt from 21 days to six months. This resulted in the amount of corporate insolvencies reducing to a fraction of previous
- Trade creditors have been holding off issuing proceedings or enforcing judgments during 2020. Now the period for compliance for statutory demands is
back to 21 days it is possible there will be a bump in the issue of new statutory demands in early 2021;
- There has been a moratorium on insolvent trading liability for Directors of insolvent companies for debts incurred in the normal course of business.
This relief has ended so Directors will by less likely to continue to trade insolvent companies.
For businesses, managing the risk of a customer insolvency is a critical part of protecting your own balance sheet. Keeping a close eye on debtors, minimising credit terms, and maintaining regular communication with customers are all simple ways to monitor and minimise risk. Businesses with exposure to significant creditors (by number or value), now might be the right time to consider a Trade Credit Insurance policy to give you more certainty on your debt ledger.
Please contact Charles for more information at email@example.com or on +61 2 8274 8138