Dynamic Business Logo
Home Button
Bookmark Button

Government agencies abandoning company wind-ups could cause insolvency tsunami

Government measures to prop up zombie businesses through the pandemic could actually be harming Australian small businesses, with new data showing company wind-ups have all but ceased in the past quarter.

Prushka Fast Debt Recovery revealed through data sourced from court records that the Australian Taxation Office and other government agencies, typically the largest source of company liquidations, have halted their winding up of businesses.

In April to June, 374 businesses issued Notices of Winding Up Applications, a decrease of 47 per cent compared to the last quarter, and 64 per cent year-on-year.

Roger Mendelson, CEO of Prushka, warned while the government’s initiatives to support businesses through the COVID-19 pandemic were helping keep companies afloat, it will cause a backlog of wind-up and bankruptcy cases.

“From April, the government issued several temporary changes to support financially distressed businesses, including extending the time companies have to respond to a statutory demand from 21 days to six months. This has caused an incredible slowdown in the debt collection process,” Mr Mendelson said.

“This backlog of cases could cause major economic dislocation post-COVID in a time where we will need entrepreneurs thriving and small business owners working towards rebuilding.

“If the government were to extend these measures, Australian SMEs would be restricted from taking action to protect their livelihood and it could also encourage irresponsible businesses to incur debts they have no hope of paying.”

This is reflected in Prushka’s own data from its 58,000 small businesses client base, showing SME’s are referring debts much earlier.

Related: How is JobKeeper 2.0 different?

“We’ve seen a 64 per cent decrease in the average size of debts for April and May this year compared to last which indicates that Australian SMEs are focusing on cleaning up their smaller outstanding debts to boost cash flow.”

“We’ve also seen a 41 per cent increase in the number of debtors seeking instalment arrangements during the pandemic compared to 2019, suggesting businesses and consumers are preserving cash in every way possible.”

The most recent quarter (Apr-Jun) saw Victoria issue the largest number of wind-up applications at 169 reports, or 45 per cent of all applications. This figure was followed by New South Wales.

Mr Mendelson warns that these figures are modest, “These figures are just the tip of the iceberg and there would be many more companies which are technically insolvent however may not be commercially viable to wind up. With loosening laws on insolvent trading, I expect a significant number of companies fall into this bucket.”


Keep up to date with our stories on LinkedInTwitterFacebook and Instagram.

What do you think?

    Be the first to comment

Add a new comment

Guest Author

Guest Author

Dynamic Business has a range of highly skilled and expert guest contributors, from a wide range of businesses and industries.

View all posts