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Australia spared global business insolvency ‘tsunami’ but still on high alert

Karen Tan
25 May 2021 1 minute readShare
global business insolvency

Australia appears to have dodged a bullet when it comes to business insolvencies, compared with the rest of the world, but is still not out of the woods.

Despite the federal government’s temporary support measures, insolvencies are expected to rise by 10 per cent this year, and a further 10 per cent in 2022, compared with 2019, according to the Global Insolvency Index from trade credit insurer Euler Hermes.

New Zealand is also predicted to see a 10 per cent increase in 2021 and 2022 after experiencing an 11 per cent decrease in insolvencies in 2019 and 16 per cent decrease in 2020.

That is compared with a predicted 57 per cent rise of business insolvencies in North America by the end of 2022, compared with 2019. Latin America will be 31 per cent higher, Western Europe up by 23 per cent and Asia will be 18 per cent higher.

The index predicts that the Asia-Pacific region will outperform other regions of the world, with a 4 per cent increase in insolvencies in 2021 and 18 per cent next year compared with 2019.

Bradd Morelli, national managing partner from the insolvency solutions company Jirsch Sutherland, said the once-predicted global insolvency time bomb has been defused by the government’s lifeline. It is hoped these measures, combined with the vaccine rollout, will “supercharge global growth”.

“In Australia, government support has cushioned the fall and put the country in a strong position compared with many other regions. But it doesn’t mean there won’t be companies winding up,” Mr Morelli said.

While insolvencies are on the rise across the world, Australia is doing better than most. For now.

He said: “The phasing out of the stimulus measures is expected to start an increase in insolvencies from the second half of this year. And the zombies will be leading the charge — particularly pre-COVID zombies, i.e., companies that weren’t viable before the crisis but were kept afloat by the emergency measures; and COVID-19 zombies, i.e., companies weakened by the pandemic, notably in the sectors most impacted by the pandemic, such as restaurants, hotels, tourism and travel.”

Mr Morelli warns we must not be complacent.

“However, there are also still-viable companies that have been scarred by the 2020 hit on cash flow and profitability. The scars will take time to heal, but with the right help and solutions, they can turn their businesses around and prepare for the future,” he said.  

There is help at hand for those companies at risk, with business recovery practices and special insolvency firms able to guide those struggling with the best solutions.

Australia spared global business insolvency ‘tsunami’ but still on high alert
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Karen Tan

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