Will my business sink into the coming deluge of insolvency?

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Business news and the media are increasingly concerned about the increase in insolvency appointments. Many experts warn that the country will experience a significant increase in bankruptcies following the pandemic.

What is the cause ?

The Covid-19 pandemic and associated restrictions have led to the introduction of measures to ensure businesses can still trade. The Australian Taxation Office has not searched for unpaid debt since 2020 and the JobKeeper wage subsidy has allowed many businesses to remain open. These measures have reduced the number of bankruptcies in 2020 and 2021, compared to what would be expected in a regular year.

The lifting of these measures is combined with the recent activity of banks which are beginning to claim unpaid debts and to raise interest rates. Other factors contributing to financial pressures are the rising cost of living, rising fuel prices, supply chain delays, staff shortages and the Russian-Ukrainian conflict. Companies are now unable to hide the fact that they are not solvent.

What’s coming?

The increase in compulsory liquidations seems to indicate that insolvency is on the rise. Judicial liquidations increased by 114% in the third quarter of the 2021-2022 financial year, compared to the previous year.[1]

The ATO actively searches for unpaid debts and said it issues between 30 and 40 penalty notices for administrators each day.[2]

We are also seeing a fairly significant increase in insolvency in the construction industry. Many large construction companies are unable to cover rising costs under fixed price contracts. This can be replicated in many other industries.

If England is any indicator of what’s to come for Australia, the 60-year record for insolvency appointments is cause for serious concern.[3]

What can you do there?

This is a great time to check your finances and make sure your business or business is solvent. If you have received a formal notice, a notice of bankruptcy, a notice of sanction from an administrator, a request from a creditor, a request for liquidation or any other formal notice, summons or claim, you must act quickly because the different schemes all have very tight deadlines within which you must respond. If you have received any of these documents or have other concerns, please contact us for legal advice to determine what action to take.

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