‘Unprecedented number of corporate collapses’ ahead
The liquidator of the highest-profile fashion casualty of the coronavirus pandemic has warned there will be an “unprecedentedly large number” of corporate collapses unless there is a staggered removal of safeguards for struggling businesses.
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The liquidator of the pandemic’s highest-profile fashion casualty has warned there will be an “unprecedentedly large number” of corporate collapses unless there is a staggered removal of safeguards for struggling businesses.
As Sydney’s normally bustling CBD, shopping strips and harbour remained virtually deserted yesterday, Ernst & Young partner Justin Walsh, who is winding up clothing chain G-Star Raw, said struggling companies were currently being shielded from all the usual causes of failure — repossession by landlords, industrial relations disputes and debt recovery by lenders, suppliers or the Australian Taxation Office.
“They are all going to change back,” Mr Walsh said.
If that happened simultaneously, an “unprecedentedly large number” of businesses would fold, he said.
While he didn’t expect politicians would allow that to occur, it remained an imminent risk, “because at the moment, there is no certainty”.
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But with confirmation this week that the economy was in recession for the first time in 30 years, CreditorWatch CEO Patrick Coghlan said a record number of administrations was an “inevitability”.
“It’s a headline that is going to be written — either shortly or in six months’ time,” Mr Coghlan said.
Data prepared for The Daily Telegraph by CreditorWatch shows the number of businesses that went into administration from the start of April to the end of August fell 48 per cent compared to the same period last year.
The huge drop is due to temporary provisions allowing directors to trade while their businesses are insolvent.
Those provisions are due to expire on September 25, but could be extended.
Mr Coghlan said the temporary “safe harbour” had to end sooner rather than later so operators able to stand on their own feet weren’t knocked over by those that could not.
“It only takes one or two bad debts,” he said.
Still, he agreed with EY’s Mr Walsh that removal of protections had to be “staggered”.
He noted JobKeeper had already been extended beyond September, albeit at a lower rate. It could be increased, if needed.
It remains unclear when banks and the ATO will demand payment from those in the red.
G-Star is one of 534 companies to be liquidated in NSW since April 1.
Mr Walsh said the chain had traded profitably since entering administration in May, but no buyer had emerged so creditors voted to put it into liquidation late last month.
Six of G-Star’s 19 stores were in NSW, including one in the CBD at World Square.
Small-business owners in Sydney’s CBD have also suffered a dramatic decline in trade and are on the brink of collapse, with the shopping strip and tourist areas virtually deserted as many people continue remote working in response to the pandemic.
Wayne Quirk, who has owned a snack kiosk on Macquarie Street for 15 years, said the pain and uncertainty of the COVID-19 crisis has forced him to reconsider the shop’s future: “I don’t see myself surviving without the government’s help.”
Sandra Douehi has had to step in and help work at her husband’s 64-year-old shoe repair business, Coombs Shoe Services, in the Strand Arcade: “There’s not many people around working in the offices and we rely on office workers and tourists.”
Merivale hospitality group owner Justin Hemmes has welcomed the NSW government’s decision to hold a summit to save the CBD from oblivion over the critical summer months.
In NSW there were 12 new COVID-19 cases recorded on Thursday.