The headlines go something like this “Zombie Companies could wreak havoc on Australian Economy” or “Thousands of zombie firms set to march into September reckoning” (actually we have past September, and we don’t see massive growth in liquidations, court wind-ups or administration in the daily reports). My favourite – “Fears over the growing stockpile of zombie companies” which for reasons you will soon see have irony.
The headlines lead to articles that tell us we are currently living in an economy where many businesses are ‘doomed to fail’ and that fiscal initiatives are artificially propping up companies.
That is possibly true, only to a degree.
Yes, many businesses did not sack or stand down staff because they had something to pay them with Jobkeeper. That was the idea behind without any side plan from the Federal Government. They need to trade forward to see how damaged their businesses are. When I say that – I leave out hospitality and retail, because many are truly dead in the water.
While many landlords are wondering how best to claw back all that rent owing, many will know that some compromises must be made. Many creditors have held back, and those who primarily supply the trades will be sitting on personal guarantees, but they will be patient.
During this COVID period, the Australian Taxation Office has gone from trying to collect money for the Government -to handing it out. Lots of it. We have clients who have gone from struggling to being cashed up.
If we take the phrase “if and when debt falls due” then we can shut down almost every business in Australia and call virtually every company in Australia a zombie business. Has every insolvency practice paid their debts, especially to the Australian Taxation office, when the compliance debt falls due?
For SME’s, the biggest creditor has always been the Australian Taxation Office.
Before COVID hit us in March, our accounting and consultancy business has been aware of companies living with tax debt. They exist from one payment plan to another (do not believe the ATO was not continually making new deals with SME’s) or they ignored their tax debt. At the same time, the machine at the Australian Taxation Office spat out an endless number of different coloured letters to businesses threatening action.
The number of times we would look at a portal of a prospect and see that debt up to $100,000 was written off, considered as non-commercial to peruse by the Australian Taxation Office.
We introduce a lot of businesses to insolvency firms.
Most of those have been businesses run by business owners who want to deal with their tax debt.
Sure, there are always some with creditors statutory demand, a director’s penalty notice or a court writ, but most of our introduction was with our clients who wanted to pay the tax debt and change their life.
Many business owners, especially small SME’s (67.2% of all enterprises in Australia are just one person – Bureau of Statistics document 8165) happily live with tax debt, paying “something” occasionally.
This was the status quo before COVID. Nothing changes unless the Australian Taxation Office gets active. As the Federal Government wants to grow the economy, thereby shrinking the massive debt we have, they will not do it by letting the dogs off the leash at the ATO.
Zombie businesses that have always had the “Sword of Damascus” over the head have been a significant part of the Australian landscape for years. It is nothing new, and COVID did not make them Zombie businesses, they were already Zombie businesses.
We have builders with massive creditor lists, but they keep them in control. We have clients who for years, have been slowly working down their tax debt, and we have many clients who have not been fussed about their debts.
Zombie businesses are not new.
One thing we have noted since mid-March is that we have had a close engagement with our accounting clients. This has come about because they needed or wanted something, and we have worked tirelessly to get as much as we can for them out of the council, state, and federal stimulus packages. Many businesses have now taken note of their finances, especially where the drama continues in Victoria, and we see more and more businesses head towards a bigger and better profit. They have become aware of compliance, because of the information we have needed to reach the stimulus package eligibility requirements.
In a nutshell, nothing changes. It is down to the ATO activity to see how busy we all get.
I will slip in hear that our Fast Rabbit company provides a service where we take bank statements and turn them into accounts that make reports, checking for voidable preferences and an understanding of the business’s performance easily.
You can put away the highlighters and the need to load up an excel spreadsheet. We can do all that for you.
If you take on the role of Small Business Restructuring Practitioner, with the Government’s product of “debtor in possession”, we can take a bank feed and tell you overnight if the business makes or can make money, and if the plan being proposed by the business owner has legs.
Contact us at Fast Rabbit and let us know if we can help you with a job. And maybe you have a comment for our blog.
