Businesses put to test as debt holidays expire

A “steep increase” in insolvencies is expected as debt holidays come to an end and other government stimulus measures are wound back.

Noosa River pizza restaurant Madmegs and Co closed down in December and has gone into liquidation.

A "steep increase" in insolvencies is expected as debt holidays come to an end and other government stimulus measures are wound back.

Relaxed insolvency laws which allowed businesses to trade without making a profit for six months expired on January 1, and the time frame has been reduced to 21 days.

Noosa-based insolvency expert and liquidator Jarvis Archer said during COVID-19 insolvency appointments had dropped by about 60 per cent compared to 2019.

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He said there have been about 3000 less insolvencies since March 2020, with numbers particularly low on the Sunshine Coast.

But with temporary relief expired for bankruptcy notices, statutory demands and insolvent trading, businesses must operate under pre-COVID laws.

"These changes coincide with the rolling back of rent relief, other Government stimulus measures and the ATO recommencing action to recover tax debts," Mr Archer said.

"Anecdotally, debt collectors and solicitors acting for various clients have indicated they have a number of statutory demands to recover outstanding debts at the earliest opportunity in January."

A statutory demand gives a company 21 days to pay an outstanding debt, otherwise the creditor may file a winding up application at Court.

Revive Financial Partner Jarvis Archer is a Queensland liquidator.

"This means that three to four weeks into January there may be a wave of winding up applications filed against companies," the Revive Financial partner said.

Two days before Christmas Noosa restaurant Madmegs & Co went into liquidation, becoming the latest Coast business to close due to the virus pandemic.

The business owed about $170,000 in debts to its landlord, the tax office and two small suppliers.

After months of financial difficulties it was after the business was flooded by a wet weather event that the owners decided to close and have the Gympie Tce eatery wound up.

Mr Archer said a business with tax debts would need to enter into a payment plan with the ATO and if that was not an option, consider insolvency.

"Business owners who have managed through 2020 reasonably well will need to ensure they can continue meeting their expenses and debts without the Government stimulus, including the Cashflow Boost and JobKeeper payments," he said.

But Mr Archer said there could be some relief in new laws for small business restructuring processes.

He said eligibility for the support was based on if companies had less than $1 million debts, have ATO lodgements up-to-date and superannuation and other employee entitlements paid.

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