In my December letter I noted that 2020 ended with some hope following positive signs our economy was starting to recover from the effects of the COVID-19 pandemic. Certainly, the Christmas outbreaks disrupted the nation’s festive season and meant that just about every eastern seaboard household’s holiday plans were challenged. Economically though, it meant thwarted hopes for already struggling tourism and hospitality businesses banking on home-bound holiday-makers making up for last year’s trading losses. COVID-19 outbreaks, regional lockdowns, border closures and consumer fears have combined to ruin the hopes of those businesses.
So, I find it extraordinary (and welcome) that recent indicators show Australia’s economy appears to still be on track for recovery. The December 2020 sales figures were actually better than those of the previous year (in 2019, before most of us could spell ‘Coronavirus’ or appreciate its devastation). Economic commentators point to other good signs like significant falls in business loan payment deferrals, surprising house price rises and even somewhat promising employment figures. Added to that is what we in the commercial recovery sector have noted, the number of so-called ‘debt holidays’ falling, and the rise in creditors resuming operations to recover monies owed.
As we have learned with this pandemic, we must not be complacent. The caveat to the relative good news is repeated warnings about the coming quarter’s figures. There will be, for example, and end to Australia’s historically low rate of insolvencies. Put bluntly, many businesses will go under. Jobs will be lost, household finances will be further strained and debts won’t be paid.
"The unpalatable reality is that many otherwise unworkable operations built up more debt during this time than they could ever repay."
This month, for example, the much-lauded Job Seeker/Keeper payments – which the government always labelled ‘temporary’ – were reduced, and will end altogether in March. This will be a blow to many. Clearly those payments did what they were intended to do in the first wave of the pandemic. They were life savers for many families and businesses alike, and kept the economy ticking over.
I’ve noted previously that the downside to the payments and other safeguard mechanisms, like debt holidays and, albeit temporary, bankruptcy protection laws, is that a number of unviable businesses were able to struggle along longer than they should have. The unpalatable reality is that many otherwise unworkable operations built up more debt during this time than they could ever repay. In doing so, they jeopardised the livelihoods of suppliers and other small business, who themselves are reliant on bills being paid.
Not surprisingly then, that along with more gloomy economic results, business leaders and commentators are signalling bankruptcies in the coming months. This is despite new insolvency laws with more options for viable, but in debt, businesses to restructure and trade on (almost US Chapter 11 style). The laws came into effect on January 1, but the 2020 ‘safe harbour’ bankruptcy protection ceased. Creditors now have the option to use bankruptcy laws to recover outstanding debts.
The spectre of bankruptcy needs to be addressed. As those of us in the commercial recovery sector appreciate, bankruptcy action is always a last resort. It is put in place when all other options for resolution and engagement have been exploited. The process, however, is not final. We need to keep reminding those affected that there is usually a way out. The key, of course, is education and communication. Not engaging with creditors is usually the reason these ‘end of line’ actions are instigated. Not understanding the process and the options available are added factors.
It is up to recovery specialists to make sure that we continue to act with compassion and keep people informed as businesses and families alike enter this new, fragile period.
Yours sincerely,
Brian Carter
Chairman