Liquidations in Victoria: ‘Good businesses will end up on the scrap heap’
Victorian businesses are being kept alive by JobKeeper and rent relief but industry leaders have critical advice for those in the danger zone. See the full list of liquidations in Victoria.
Victoria Business
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Victorian businesses given a lifeline during the pandemic need to plan their next move carefully - or it could be fatal.
That’s the message from senior industry figures who are watching the numbers of companies collapsing into administration decrease - despite the recession and damage the lockdown is inflicting on the economy - as they use the emergency law change that prevents insolvencies.
Latest insolvency numbers for the state show 14 Victorian businesses went into liquidation this month and 58 since the stage three restrictions began on August 5.
But that stay of execution won’t last and is the tip of the iceberg compared to what is coming, says Creditorwatch CEO Patrick Coghlan.
“Our advice to small and medium business is - when their security is generally going to be their home - is to get help now. Because the sooner they do, the smaller that hole is going to be and it will more likely [banks] will be sympathetic and assist or organise a deed of company arrangement or favourable terms from creditors to help you back on your feet or at least hibernate through.”
Mr Coghlan said thousands of companies were using the insolvency laws, JobKeeper and loan deferrals to stay afloat - and that meant when all those provisions ended, there would be a flood of companies needed to be bailed out and less time for detailed help.
“With so many of them it will be a scattergun approach and that will mean a line though a big chunk of them and that’s going to mean good businesses end up on the scrap heap.”
Mr Coghlan said there was an obsession creeping in about removing risk, which was something business at times thrived on.
“Unfortunately we don’t live in a word of no risk, even medicine and in health there is always an element of risk … this obsession of getting to zero [virus] cases and keeping it there is not realistic.”
The pressure businesses were under is illustrated by the growing number of days it is taking companies to be paid - CreditorWatch data shows nationally it is has grown to 43 days, which means businesses are now waiting almost three times longer to be paid than in 2019.
The hardest hit were finance and insurance industry, with a 53 day wait, while transport, postal and warehouse payments were now 90 days.
Adam Nikitins, head of insolvency for Ernst & Young, said no one could predict what the business environment would look like as the restrictions eased.
“Our message to our clients is you really need to prepare - don't wait until you have a problem to find the solution, have those in place already.”
Mr Nikitins said there wasn’t a business in Australia that “hasn’t had to manage a crisis” and when they hit, all the attention went into surviving it.
“If there is need for capital then engage early and be clear what you need and don't place problem at feet of stakeholders. Have a plan and be flexible and clear about alternatives.”
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