Around 100,000 Australian businesses are tipped to head to the wall in October, according to veteran financial journalist Alan Kohler – but the country may not see the peak of insolvencies for another three years.
On Sunday night’s ABC News, Mr Kohler said that insolvency accountants are reporting the lowest levels of insolvencies in years – from around 700 to 800 a month to less than half of that amount.
This is thanks to the Government’s changes to safe harbour provisions in April which have allowed directors to keep trading while insolvent – historically a ‘no no’.
However, he expects the corporate insolvency ‘dam’ to burst in seven weeks when those provisions end on 25 September.
The journalist used the example of the airline industry – with air travel down 93.5% on the same time last year, he predicts many businesses dependent on travellers are the ‘walking dead’ – and will need to wind up unless the measures are extended beyond September.
Noting that the time for businesses to pay invoices has already blown out from 11 days (beyond normal trading terms) to 49, Mr Kohler says his sources believe up to 100,000 businesses could go broke in October.
This would put pressure on liquidators – there are only around 650 in Australia, many semi-retired – and the banks who would need to write down loans once businesses went into administration.
So, is this happening in the aged care sector?
As we reported here, advisory firm Ansell Strategic had forecast the “imminent collapse” of Australia’s residential care sector without urgent intervention by the Federal Government.
While there have been some reports of providers looking to divest their assets – see our recent coverage of Not For Profit provider PresCare, for the most part the news of closures and acquisitions has remained relatively quiet.
But the ABC report suggests we may now be in the ‘calm before the storm’ – add in the financial pressures prior to the pandemic and the fact that the aged care sector will be dealing with the extra costs of COVID-19 for many more months – perhaps years – and it appears insolvencies may only be a matter of time.
The journalist also pointed out that insolvencies after the Global Financial Crisis in 2008-2009 actually peaked in 2012 – three years after the initial wipeout – with the average time between a business going insolvent and admitting that it is insolvent being 18 months. The reason for this the banks were not prepared to crystallise all their losses in one go. 2020-2021 could be different.
Could this be the start of a wave?
