Insolvencies Tipped to Rise Next Month

CreditorWatch is forecasting a rise in court cases and insolvencies next month as the “rubber hits the road” and stimulus packages including JobKeeper and HomeBuilder dry up.

According to the February 2021 CreditorWatch Business Risk Review, there has been a 61 per cent jump in monthly external administrations since January. This is the highest rise in 12 months and more is anticipated over the coming months.

“This is a sign of the commercial climate returning to more normal conditions,” CreditorWatch chief executive Patrick Coghlan said.

“This figure is likely to rise again in the coming months, as JobKeeper ends and the three-month reprieve on credit arrangements for struggling smaller businesses comes to a close.”

A lacklustre commercial construction sector has been dragging down the otherwise-buoyant residential construction sector, which has benefitted from the federal government’s HomeBuilder stimulus package.

CreditorWatch chief economist Harley Dale said overdue payments were a key indicator for a struggling sector and they would be following the construction industry closely.

“It’d be foolish to expect any of these industries to magically bounce back after the aftershock of the pandemic. This year will be about slow recovery,” Dale said.

CreditorWatch reported a 5 per cent increase from January in the time it took the construction industry to pay its debts, a 39 per cent increase on the same period last year.

Economists have predicted the moratorium for insolvent small businesses would give rise to “zombie companies” and these struggling small businesses would start to feel the full effects of a flagging commercial construction industry at the end of JobKeeper payments this month.

“This could prompt a rash of insolvencies and, subsequently redundancies, which could be a destabilising force on the local economy,” Coghlan said.

“The number of arrears and court cases related to bad debts tend to rise before insolvency numbers lift, and while there’s no evidence of this yet, an increase following the end of government incentives at the end of March is a strong possibility.”