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Treasurer confident March insolvency cliff can be avoided

Federal Treasurer Josh Frydenberg believes that the gradual removal of temporary stimulus measures such as JobKeeper will not lead to a sudden spike of businesses entering insolvency.

Treasurer confident March insolvency cliff can be avoided
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  • AFlores
  • December 04, 2020
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Speaking to the media, Mr Frydenberg conceded that some businesses won’t survive the changes and that some jobs won’t be able to be saved.

However, he remained confident that the unemployment rate will continue to track downwards and that other forms of economic support will help keep those jobs.

“We lifted the thresholds for the statutory demands that could be made on insolvent firms and that has meant a number of those businesses that were doing it tough have been protected through to the end of the year,” Mr Frydenberg said.

“But then that will morph into this new system, provided it gets through the Parliament before the end of the year, and I’m hopeful of getting bipartisan support for that.

“That will allow businesses that have come on hard times to trade through some of their challenges, because, as you know, as the health restrictions are eased, a lot of those businesses who did it tough over June, July, August, even September, are starting to get their customers back.”

Figures suggest insolvency cliff looms

Despite the Treasurer’s comments, data sourced by Prushka Fast Debt Recovery revealed that just 86 businesses issued Notices of Winding Up Applications during the July–September quarter, a decrease of 77 per cent compared to the last quarter, and 90 per cent year-on-year.

With temporary insolvency laws reverting in 2021, Prushka predicts that creditor-initiated wind-up applications will increase back to pre-pandemic levels.

“We are seeing an incredible slowdown in the debt collection process which is prolonging the inevitable,” said Prushka chief executive Roger Mendelson.

“This massive backlog of cases could cause significant economic dislocation, when small-business owners should be working towards rebuilding.

“As these zombie businesses are continually propped up by government stimulus, irresponsible businesses could be encouraged to incur debts they have no hope of paying and therefore causing even more nightmares as the cliff approaches.”

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