CreditorWatch and McGrath Nicol have warned Australians to expect a surge in business failures in the near-term, due to factors such as the end of the JobKeeper scheme and temporary insolvency protections.
They note that about 5,000 businesses went into administration in 2020, compared with around 8,000 in a typical year. CreditorWatch CEO Patrick Coghlan says the rate of insolvencies would have been much worse in 2020 without the JobKeeper scheme. He also says the snap lockdown in Brisbane that has coincided with JobKeeper ending also will not help, and will likely push some tourism businesses to the wall.
This testimony coincides with data from ASIC showing that only 4,751 businesses in Australia appointed insolvency practitioners in the last nine months of 2020, which was well below the 8,628 appointed over the same period in 2019.
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Clearly, the fall in insolvencies and administrations over 2020 was artificial, so we should expect them to bounce back to pre-COVID levels once government supports are wound back and the economy returns to normal.
As noted earlier this week, the number of small business loan deferrals has shrunk by 99% from their Mid-April 2020 peak, from 234,270 to just 2,803 in February 2021. Accordingly, only 1.2% of small business loans (representing just 0.2% of outstanding business credit) remained deferred at the end of February:
Therefore, while there are bound to be certain pockets of businesses facing hardship, such as tourism operators, there is no systemic threat to the Australian economy.
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