Consider voluntary administration: Deloitte

Struggling firms are being told voluntary administration may improve their chances of survival from the coronavirus crisis.

Deloitte says struggling companies should overcome the stigma associated with going into administration. Picture: AAP

Close to 35 per cent of businesses in NSW and Victoria are accessing the federal government’s JobKeeper program as the economic fallout from the coronavirus outbreak continues.

In Tasmania and Queensland the figure is more than 30 per cent, according to a report by Deloitte Access Economics.

Using Australian Bureau of Statistics and federal government data, Deloitte estimates that around 240,000 businesses are at high risk of failure come September, when the JobKeeper program is set to end.

Businesses in the hospitality, professional services, and transport sectors are most at risk.

“Some parts of Australia are likely to face higher risks than others,” the report said.

“There are two reasons for this – the degree to which restrictions have hurt economic activity, and the state or territory’s exposure to high risk sectors.”

Prior to the latest outbreak in Victoria, the state already had the second highest proportion of businesses claiming JobKeeper after NSW, with one in four businesses there operating in one of the high risk industries.

Treasurer Josh Frydenberg is set to reveal the future of the JobKeeper and JobSeeker schemes when he delivers a budget update on Thursday, and whether that will mean support for businesses beyond September.

Still, Deloitte said suppliers, creditors and insurers should prepare contingency plans for a significant rise in hardship and bad debts.

“In many instances, business owners and the directors of those businesses will also need to consider whether a voluntary administration process may maximise the chances of their business surviving – allowing for a moratorium against certain creditor claims and the opportunity to restructure its debts and reset its balance sheet for future success,” the report said.

“When used appropriately, administration can be an efficient and cost-effective restructuring tool.

“Society also needs to overcome the historical stigma associated with external administration, and recognise that, in many instances, these business owners and directors, through no fault of their own, are making tough decisions which they believe are in the best interests of all stakeholders.”

The Australian Restructuring Insolvency and Turnaround Association has warned that the government’s support schemes are potentially allowing non-viable businesses to continue to trade, with insolvency numbers across the country sitting around 40 per cent below long-term averages.