Dodgy dealings on the way up
CreditorWatch chief executive Patrick Coghlan on companies delaying winding up due to COVID-19
PHOENIX activity is tipped to spike as desperate company directors face losing their business when Federal Government support ends in September, a leading credit company boss believes.
The Federal Government’s safe harbour laws, introduced in March to support businesses suffering a collapse of cashflow following COVID-19 lockdown measures, are due to be repealed in September.
The changes provided temporary protections for directors, excluding them from liability for trading while insolvent, and delayed the time a creditor could take court action against a company.
CreditorWatch chief executive Patrick Coghlan believes a surge in bankruptcies and unsavoury activity will occur when the insolvency law measures lift in September unless support is provided.
“The government must create an administration service to support the legal winding up of companies and to combat the likely increase in illegal phoenixing that will inevitably arise,” he said.
“The safe harbour measures should be lifted gradually in order to enable businesses to adjust and for company directors to prepare their company to legally go into administration if appropriate.”
Illegal phoenix activity is when a new company is created to continue the business of a company deliberately liquidated to avoid paying its debts.
About six million workers have benefited from the JobSeeker program, which provides payments of $1500 a fortnight to staff of businesses that have recorded a revenue fall of at least 30 per cent since March 1, and there are concerns the program is propping up terminal businesses.
Mr Coghlan said within a few months business owners would need to decide whether their operations were viable.
THE GOVERNMENT MUST CREATE AN ADMINISTRATION SERVICE TO SUPPORT THE LEGAL WINDING UP OF COMPANIES
“The harsh reality is that many, many businesses will not be,” he said. “Unfortunately, the health of the SME sector gradually worsened over the course of 2019, meaning that Australia’s small businesses arrived at quarter one with reduced cash reserves.
“Businesses that are currently trading insolvent – while legally doing so – are essentially digging themselves into a greater hole of debt and risk.” Insolvency experts have generally agreed the nation will record a significant spike in the number of administrations and liquidations, particularly in the hospitality and tourism sectors.