Life after JobKeeper

Despite sustained pressure from a range of industry sectors, Treasurer Josh Frydenberg continuously poured cold water on any suggestions that the JobKeeper program – a program that has been a saviour for the Australian businesses during the worst of the COVID-19 pandemic – could have any extra life beyond 28 March.

The scheme had already been extended by six months from the end of September after a large majority of Australian businesses that signed up to the program had yet to get back on their feet. In addition, the state of Victoria at the time was also in the grips of a months-long hard lockdown as it desperately tried to curb the second wave of coronavirus cases in the state.

But since the end of September, over 500,000 businesses have graduated from the JobKeeper program, according to recent figures from the Australian Taxation Office. All industries experienced significant falls in the number of employees covered by the JobKeeper program, with the majority falling by at least half.

Every state and territory recorded a decrease of at least 60 per cent in employees receiving JobKeeper from the first phase to the second phase, with the exception of Victoria, which recorded a decrease of 44 per cent, most likely held back by its second lockdown.

By industry, retail trade (down 68 per cent), accommodation and food services (down 52 per cent), education and training (down 50 per cent), wholesale trade (down 71 per cent) and construction (down 48 per cent) all experienced substantial falls.

Further, the improvement in the number of individuals and businesses on JobKeeper was consistent across all states, territories, regions and sectors. The number of individuals supported by the JobKeeper program stood at 1.54 million in December 2020, down from the 3.6 million recorded in the month of September 2020.

But on the other hand, some industries still had a majority of employees still on the JobKeeper payment, including arts and recreation services (down 37 per cent), transport, postal and warehousing (down 36 per cent), and construction (down 48 per cent).

Before the JobKeeper extension and the miracle recovery from a wide range of sectors, there were major fears that the end of the scheme would result in a sudden spike of businesses entering insolvency as a whole heap of ‘zombie’ businesses remain propped up by stimulus.

In response to those fears, the federal government introduced the most significant changes to the country’s insolvency framework in decades, including new, simplified debt restructuring process that can be accessed by small businesses experiencing distress. The framework draws on key features of the Chapter 11 bankruptcy model in the US and will apply to incorporated businesses with liabilities of less than $1 million.

The process is estimated to cover around 76 per cent of businesses subject to insolvencies today, 98 per cent of which have less than 20 employees.

For businesses concerned about liquidation, small business ombudsman Kate Carnell suggests that small businesses secure their assets through the Personal Property Securities Register (PPSR) so they are better protected in the event of an insolvency.

“Given the incredibly tough past 12 months we’ve had and predictions of a wave of insolvencies to come, PPSR has never been more important,” she said.

“The greatest pity is that many small businesses find it too difficult to use.”

Ms Carnell said the PPSR, if used correctly, is a powerful tool that can deliver significant benefits to small businesses.

“Many small businesses are not aware that correctly registering their interests can save them a world of pain in the long run,” Ms Carnell says.

“So many small businesses have invested heavily in their businesses over the past 12 months, but few know that they can secure these loans, pushing them higher up the security chain if there’s an insolvency.

“More importantly, small businesses that register their interests won’t need to fight tooth and nail to retain title to their goods if a business customer winds up.”

But according to the ASBFEO’s PPSR Research Paper, an urgent overhaul of the PPSR system is required to make it accessible to small businesses.

The paper recommended streamlining the system by encouraging small business cloud accounting platforms to provide regtech solutions such as pop-up reminders to small business owners who record a personal loan to the balance sheet, before alerting them to register it on the PPSR.

Ms Carnell says the PPSR in its current form is not making life easier for small businesses.

“The name is confusing, the language is overly technical and the operation of the register is very complicated,” she says.

“Many small businesses we spoke to said they would need a lawyer to help them register their interests — an additional cost burden for struggling small businesses.

“Put simply, systems and regulations imposed on small businesses by government need to be easy to get right and hard to get wrong. At the moment, PPSR is hard to get right and easy to get wrong.”

Filling in the JobKeeper void

But while most industry sectors are well on their way to a full economic recovery, others continue to struggle. With the JobKeeper tap turned off, the federal government has looked to other stimulus programs that are much smaller and more targeted.

One industry that continues to be hard-hit by the coronavirus crisis is aviation. Over the last 12 months, at least 11,000 aviation workers have been made redundant, while a further 2,500 ground-handling and cleaning workers have been axed and outsourced by Qantas.

Following a warning from Health Department secretary, Professor Brendan Murphy, that international border closures will most likely remain until 2022, a group of 14 aviation companies, including Virgin Australia, Menzies Aviation and the Transport Workers Union (TWU) have called for an JobKeeper-like program that is essentially a JobKeeper extension to all aviation workers.

TWU assistant national secretary Nick McIntosh says the government must act quickly to ensure our critical aviation industry remains intact and retains its highly trained, skilled workforce.

“The loss of skilled workers in the aviation industry has already been colossal. Thousands of families have been left jobless and thousands more are looking to another year of uncertainty, made worse by the impending termination of JobKeeper,” Mr McIntosh says.

“For aviation, this year began in the same manner as the height of last year’s lockdowns, with both international and domestic borders closed. It makes no sense to remove the wage subsidy lifeline that has kept aviation businesses going and assisted many workers to keep their jobs and pay their bills while planes are grounded.

“We need a plan to keep aviation going while borders remain shut; otherwise, more jobs will be lost, which would be devastating for working families, tourism and the economy’s ability to recover.”

The continued closure of international borders (and sometimes state borders) has also left small travel agents unable to trade, something that will likely remain a persistent issue for at least the rest of this year. After thousands of travel agents reached out to the small business ombudsman for help, the government announced a $128 million scheme that essentially offers travel agents with a turnover of between $50,000 and $20 million a one-off payment.

Under the scheme, payments are scaled from a minimum $1,500 for a business with a turnover of $50,000 up to a maximum payment of $100,000 for a business with a turnover of $20 million.

The Australian Federation of Travel Agents was quick to applaud the announcement.

“We are delighted that the Morrison government has acknowledged the unique and challenging circumstances that travel agents have been confronted with,” chief executive Darren Rudd says.

“This package will help to ensure the sector’s sustainability to assist Australian travellers with the new world of COVID-safe travel.”

Further, since the start of February, the federal government has put in place a JobMaker Hiring Credit as an incentive for businesses to form newly created positions in return for extra stimulus money. The JobMaker scheme is scheduled to be in place until 6 October 2022.

Under the JobMaker program, businesses must show an increase in their employee headcount and in the employee payroll for every quarterly period as determined by the ATO, with the amount received based on the number of eligible employees they have hired.

Under the scheme, eligible businesses can access the payment for up to 12 months for each eligible additional employee they hire between 7 October 2020 and 6 October 2021, and will be able to claim up to $200 a week (or $10,400 a year) for each additional eligible employee they hire aged 16 to 29 years, and up to $100 a week (or $5,200 a year) for those aged 30 to 35 years.

Employees need to have completed a minimum average of 20 hours (worked or paid) per week during the time they were employed in the JobMaker period.

Then there was the HomeBuilder program that was originally intended to last until the end of 2020 before the federal government extended the program until 31 March 2021. Under HomeBuilder, eligible owner-occupiers (including first home buyers) are given a grant to build a new home or substantially renovate an existing home, with the intention of propping up the residential construction sector.

Businesses should start getting real

The aforementioned stimulus measures are just a few from the federal government, and don’t include the small business support measures introduced across the state and territory governments. Clearly, there are many other avenues of support for businesses beyond JobKeeper.

Regardless, even with the range of support programs available to businesses, for those that have largely relied on JobKeeper during some of the (or the entire) duration of the scheme, Jirsch Sutherland national managing partner Bradd Morelli suggests that business owners and directors do a simple self-assessment and determine whether, post-JobKeeper, they have the ability to pay staff wages, tax, rent and superannuation.

“It’s crucial for business owners and directors to be proactive and to act early if they’re in financial distress,” he says.

“There can be options, but it’s important to understand which process is right and know when to use it. There’s a huge difference between early intervention, a controlled process, a reactive process and a forced winding up.”

Mr Morelli also says he expects that once businesses that are still on JobKeeper receive their last payments in April, the ATO will start to pursue outstanding debts.

“While the ATO has been very quiet for almost 12 months, that won’t last (their debt book is an estimated $53 billion and they want to recoup this). And that’s when we expect to see the insolvency wave building,” he says.

Mr Morelli also highlights recent reforms such as the Small Business Restructuring and Simplified Liquidation processes may help struggling businesses out of trouble. However, he warns that such reforms “aren’t as simple as they first appear”.

“While they encourage earlier intervention, they come with their own level of complexities,” Mr Morelli says. “Despite the reforms, the best and most appropriate appointment may still be a traditional appointment. There are various options, so it’s important for business owners to ask for help if unsure. As always, it’s crucial to be proactive and to act early.”