Thousands of Australian companies to fail within three months as JobKeeper dries up

A string of Aussie industries are facing a bloodbath, with thousands of local companies set to collapse within three short months.

Thousands of Australian companies are tipped to collapse into administration within the next three months – and some industries are particularly at risk.

According to commercial credit agency CreditorWatch, several government measures introduced during the coronavirus crisis meant the average rate of insolvencies actually decreased during the pandemic, with many ailing firms artificially propped up during the emergency.

However, those measures – including the JobKeeper wage subsidy and the temporary moratorium on trading while insolvent – have now come to an end, meaning many struggling companies are on borrowed time.

Around 8000 companies are placed into insolvency each year in Australia on average, but in 2020 at the peak of the pandemic, that number fell to 5000 as a result of government intervention.

CreditorWatch CEO Patrick Coghlan said that meant around 3000 businesses are now in the firing line, along with a slew of others that are also likely to be placed into administration in the coming months as a direct result of the pandemic, before the market returns to normal.

“From a basic arithmetic perspective, we’ve got around 3000-odd businesses that didn’t go into administration that normally would have in a regular trading year, and then on top of that we have businesses that have been affected by COVID that simply won’t survive as a result of the conditions they’ve battled,” he said.

“And the current Brisbane lockdown is just going to put more pressure on those already affected, so there will be 3000 to 5000 minimum.”

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More than 5000 businesses are on the brink of collapse. Picture: David Crosling/NCA NewsWire

Mr Coghlan said the data proved some industries were under more stress than others, with the accommodation, food and beverage, administration and support services and transport, post and warehousing sectors now under “tremendous pressure”.

And he predicted that Australia would soon see insolvencies increase based on geographic locations as well, such as Queensland’s struggling tourism industry.

However, Mr Coghlan said the looming collapses were inevitable and that “we can’t continue to throw good government and private enterprise money” at businesses which had no chance of repaying their bills.

“That’s just not how the economy works, unfortunately,” he said.

But while the prospect of 5000 businesses failing in a short period of time sounds frightening, Mr Coghlan insisted it was a far better outcome than what was widely predicted by economists, the government and other experts at the start of the pandemic.

“It sounds like a scary number, but it’s actually not that bad – six to nine months ago, they were saying 200,000 businesses could potentially go under and now we find ourselves in the best-case scenario,” he said.

“We are so far ahead and consumer and business confidence continues to build.

“We’re in a fantastic position, and these closures just have to happen.”

McGrathNicol restructuring partner Kathy Sozou said many businesses which had been in a “protective bubble” until now would soon flounder.

“Companies that should have begun the administration process have been continuing to

trade. While this has been necessary to save jobs, the risk is businesses will never be able to

recover debts from these ‘zombie’ companies,” she said.

That puts pressure on the entire economy. It’s hard to know how this will play out, but if we

see more business failures, that will have an impact on unemployment and consumer

confidence.”

JobKeeper backlash

Meanwhile, the withdrawal of the JobKeeper wage subsidy has also sparked outrage from critics who claim it could cause a huge spike in unemployment and derail Australia’s fragile economic recovery from the COVID-19 recession, with Treasury officials confirming they expect up to 150,000 people to be thrown out of work after JobKeeper ends.

Professor Jeff Borland from the University of Melbourne put that figure far higher in his labour market snapshot earlier this month, writing: “My best guesstimate is that 125,000 to 250,000 persons might lose work when the program finishes at the end of March”.

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Up to 250,000 Aussies might find themselves out of work post-JobKeeper. Picture: Glenn Hampson

“Just a week after reducing the rate of JobSeeker by another $100 a fortnight, and with an average of eight people already competing for every available job, pushing another 150,000 people into the dole queue will likely see thousands of Australian families thrown into poverty,” independent progressive think tank Per Capita’s executive director Emma Dawson said.

“For small businesses in retail, tourism and hospitality that are still struggling to rebuild, the loss of spending power from 150,000 people across the country, many in hard-hit regional areas, could be devastating. This wrongheaded move could send many more businesses to the wall, destroying even more jobs over coming weeks and months.

“For a government that claims to be focused on ‘jobs and growth’, to pursue such a destructive economic policy during a recession simply beggars belief.”

Australian Council of Social Service (ACOSS) CEODr Cassandra Goldie agreed, claimingthe JobSeeker payment should be increased and JobKeeper reworked for the greater good.

“With the stronger than expected recovery the government should have kept targeted JobKeeper support in place for the hardest hit industries – in the tourism, hospitality and arts sectors, instead of a mishmash of grants and subsidies,” she said.

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The government insists it’s time to pull the plug. Picture: iStock

“ACOSS proposed that JobSeeker should be increased to at least $65 per day which would raise it to just above the poverty line.

“It is unconscionable that about 3 million people will return to extreme poverty while people with property will see their investments boom and those on medium to high incomes will reap $2 billion per month in tax cuts between now and the end of September.”

‘Achieved its objectives’

Despite the outcry, Treasurer Josh Frydenberg insisted ending JobKeeper was the right move.

“It has achieved its objectives of supporting businesses and saving jobs, preserving employment relationships and delivering much needed income support across the economy,” he said.

“JobKeeper was an economic lifeline which helped keep around a million businesses in business and 3.8 million Australians in a job at the height of the pandemic. The RBA estimated that JobKeeper saved at least 700,000 jobs.”

Originally published as Thousands of Australian companies to fail within three months as JobKeeper dries up