What Will a Rush of Insolvencies Bring?

If you’re a regular reader of this blog, you’ll know that although Australia has entered recession for the first time in 29 years, corporate insolvency appointments have been at record lows for this time of the year (still down roughly 50% on the same time last year). We’ve speculated about when the rush might be coming – it could be later in September when JobKeeper reduces, Insolvent Trading laws reactivate (if they don’t push that out) and Landlords are able to evict tenants again. It might not be until next year when the ATO resumes debtor collection at full speed, but it will come to some degree. At the very least the companies that would normally have gone into liquidation or administration in this current slowdown will have to close some time soon.

So there will be a rush of Insolvencies – what will that mean?

Insolvency Prices May Rise

In previous busts, when demand for Insolvency Practitioners has risen, prices have risen with it. If you have a client on the brink at the moment, they should think about engaging an Insolvency Practitioner sooner rather than later or they may find they are paying up to 60% more for the the same service.

Debt Pursuit will Become Difficult

Whilst there will be an increase in formal insolvency appointments with little in the way of assets to repay creditors, there will also be a large, hidden number of companies that close, but can’t afford a liquidator. If a debtor company closes and the directors just walk away, you are not left with many options to pursue your debt. The formal path of engaging a lawyer to petition court to put the company into liquidation is viable, but expensive. Especially in the current economic climate there’s a high chance you are just throwing good money after bad. These challenges can often lead to a domino effect of nonviable companies and the proliferation of Zombie Companies.

An Increase in Clients asking Tough Questions

Small accounting firms who don’t often have to deal with insolvency matters may suddenly find themselves thrust into unfamiliar territory. Remember Insolvency Solutions Group is your one stop shop for insolvency advice. We are happy to jump on a conference call with you and your client at a moments notice, or just pass on our number – we even offer video conferencing consultations. We offer genuine free, confidential advice to you or your client.