September sees bump in administrations as reality sinks in

insolvencies, insolvency

So-called “zombie” businesses that have been kept alive through government support, rather than market forces, are beginning to shut up shop, according to research by CreditorWatch.

Victoria recorded a 23.8 per cent increase in business administrations in September and Queensland a 24.1 per cent increase, while New South Wales saw a further 1.6 per cent decrease.

“Seeing businesses enter into administration is never something you want to celebrate. However, September’s increase in default and administration rates does indicate that some businesses which have been reliant on government support are starting to accept the reality of their situation and are taking steps to settle with their creditors,” CreditorWatch CEO, Patrick Coghlan, said.

“What we don’t want to see is businesses that are doomed to fail continuing to operate and taking healthy companies down with them. The long term-trend is that zombie companies will continue to survive on government support and so the next six months are crucial in determining what position we start our economic recovery from.”

And, despite the fact retail has been significantly impacted by the pandemic – with store closures and customer movement restricted – CreditorWatch classified it as one of the “best-performing industries” in terms of how quickly it is paying its bills. Retailers, on average, are only 30 days overdue on bills – an improvement of six days compared to August 2020.

“Payment times provide a glaring picture of how tough the environment is, especially when juxtaposed against 2019,” CreditorWatch chief economist, Harley Dale, said.

“However, payment times still remain too high and some sectors are being particularly stubborn… As government support is rescinded, which way this metric tracks will be crucial in determining how well Australian firms fare in our new economic world.”

This story first appeared on our sister publication Inside Retail