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Strong recovery being seen in Australia's corporate market is presenting a good opportunity for accountants to carry out a financial health check on their clients, according to a partner.
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Why now is an opportune time for accountants
25 November 2021
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13 minute read
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Speaking to Accountants Daily, Blackwattle Legal partner Trevor Withane said unlike other jurisdictions, Australia is in a prime position with respect to post-pandemic corporate recovery.
"According to published insolvency data, corporate Australia does not seem to have been adversely affected by lockdowns and border closures compared to some other countries. Interestingly, we have seen an uptick in certain corporate activity, such as M&A," Mr Withane said.
"The reason for this apparent resilience of corporate Australia is a cocktail of government and private COVID-19 recovery measures. These principally include JobKeeper payments, the temporary changes to the statutory demand thresholds, the leniency of the ATO both in its willingness to provide generous payment terms and deferral of enforcement action, and the willingness of banks and other creditors to defer repayment and their reluctance to take enforcement action.
"However, it is unknown at this stage whether as COVID-19 assistance tapers off, businesses will be able to generate sufficient cashflow to survive. It will be interesting to see how many insolvency appointments are made over the next few years – my guess is that future data will show us that many zombie companies have been lurking for the last two years."
Going forward, Mr Withane said he expected accountants to see more clients in need of restructuring and turnaround type advice as the country moves out of COVID-19 and into post-lockdown recovery.
"We are fast approaching the point when it will no longer be possible to blame the pandemic for business failure," he said.
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"As things currently stand insolvency appointments are down, as against long term trends and recent experience. In financial year 19-20 there were 7,362 appointments and in 20-21 there were 4,235. The year before that, 18-19, there was 8,105.
"When the GFC hit in financial year 07-08 there were 7,907 appointments, the following year in 08-09 there were 10,005. That experience suggests that there is a bit of a time delay before firms hit hard times, and they start showing up in the statistics. There is nothing about the COVID-19 crisis that suggests to us that it will have made business failures less likely across the economy."
Overseas comparison
Continuing on, Mr Withane spoke to what his firm is seeing from the UK, noting both the differences and similarities in the markets.
"The UK suffered a greater and more sustained economic impact at the hands of COVID-19, although to some degree it isn’t always clear whether the economic driver was COVID-19 or Brexit. Government assistance for businesses, including cash handouts and low interest loans, eased in the UK in the beginning of March," Mr Withane said.
"Similar to Australia, the UK government provided cash payouts to businesses for employee wages and introduced temporary regulations on statutory demands and winding-up petitions. These measures concluded at the end of September 2021.
"Following the end of the COVID-19 recovery measures, there was an immediate impact on the level of corporate insolvencies in the UK. Reported data indicates that there was an increase of 43.5 per cent in formal insolvency appointments in Q3 2021 compared to Q3 2020. This differs substantially to the trend we see in Australia where, historically, formal insolvency appointments trail a year or two behind economic crises.
"A rapid rise in formal insolvency appointments, however, may more closely reflect the extended lockdowns they experienced coupled with post-Brexit disruptions. On this basis it will be interesting to see whether Melbourne based businesses fare worse than businesses in other parts of Australia."
The opportunity for accountants
With all this in mind, Mr Withane said its a great opportunity for accountants operating in the Australian market to check in on their clients.
"We think that this is an opportune time for accountants to carry out a financial health check on their clients and assess whether their current financial position, modelling and structure is viable and fit for purpose, or whether there is room to improve," he said.
"This will generate opportunities for accountants to entrench themselves further in their clients’ businesses by, for example, advising on restructuring, tax and other advice areas within an accountant’s expertise."
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