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External administrations surged by 61 per cent over the last month, sparking fears that more companies will collapse once JobKeeper expires at the end of the month.
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Insolvencies spike by 61% in February
10 March 2021
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The latest data from CreditorWatch has revealed a jump from 254 external administrations in January to 408 administrations in February, the highest the figure has risen for a year.
The sharp spike in insolvent companies within the first two months of 2021 comes after ASIC figures showed a 12 per cent decline in external administrations over the last year as various government support measures helped keep businesses afloat in trying economic conditions.
However, with JobKeeper coming to an end in just over two weeks, CreditorWatch chief executive Patrick Coghlan believes administration figures are set to rise again, particularly as “zombie” companies accept the reality of their situation.
“This could prompt a rash of insolvencies and, subsequently, redundancies, which could be a destabilising force on the local economy,” Mr 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.”
Credit inquiries on the up
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Despite the increase in insolvencies, credit inquiries have jumped by 29 per cent, a sign that trading conditions are improving, and that some businesses are preparing to return to normal levels of service.
CreditorWatch chief economist Harley Dale believes the rise in credit inquiries indicates businesses are stocking up and buying the underlying materials required to make products and services to fuel economic growth.
“The February credit inquiry figure is the highest monthly number since August 2020,” Mr Dale said. “On a quarterly basis, credit inquiries are up by 10 per cent in the three months to February 2021, compared to the equivalent period 12 months prior.
“Many businesses are ready to thrive in a post-COVID environment after becoming leaner and adapting their business models, so this is very encouraging and will be essential in kick-starting a chain-reaction effect across both the business sector and wider economy.”
Business confidence is also now at a 10-year high, according to NAB, with all industries, except retail, now increasingly optimistic.
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