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    Zombie businesses loom amid Covid

    The latest Business Stress Report released by insolvency specialist firm, Dissolve, highlights a significant and unexpected downturn in corporate and personal insolvencies in Australia since the Covid outbreak.

    But rather than be a cause for celebration regarding the impact of Covid on Australian businesses, the Dissolve report identifies several underlying factors that it believes represent an ongoing threat to the Australian economy.

    Suspension of recovery actions

    Dissolve CEO Cliff Sanderson says the most common triggers for formal insolvency appointments are recovery actions initiated by the ATO, banks, financiers or landlords.

    “The present level of recovery inaction by these significant stakeholders removes the usual imperatives for business owners to initiate formal insolvency procedures, even though their businesses may be hopelessly insolvent,” he says.

    “As a result, we expect to see a proliferation of failed, yet alive, companies in the economy. In other words, ‘zombie companies.’”

    Zombie aftermath

    Zombie companies are a problem, explains Mr Sanderson, because they continue to use resources and compete against healthy companies.

    “Zombie companies may end up in insolvency eventually, but where there are significant time delays, assets will have been dissipated and the possibility of a successful recover action to correct wrongdoing is reduced,” he said.

    Report findings

    The Dissolve report shows the number of companies entering formal insolvency administrations for the year up to May 2021 was down by 49% on the numbers for the same period last year. Similarly, personal insolvencies of around 2,500 for the quarter ended March 2021 are dramatically down on numbers seen in 2018 around 8,000 per quarter. That is a 69% drop in personal insolvencies.

    The full business stress report can be downloaded from www.dissolve.com.au/bsr/dissolve-bsr-jul-2021.pdf.

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