Back at the end of 2020, I spent some time reflecting on what had occurred during that year and its effects on the business landscape. I wanted to then provide some thoughts around what might happen in 2021.
At the beginning of 2021, the massive amounts of government stimulus were scheduled to end in the first quarter. It also appeared as though the COVID 19 restrictions were progressively ending, and business would return to some level of pre-Covid normality in the second half of the year.
Given this backdrop, I predicted there would be a sizable increase in insolvencies as businesses started to act against those customers/clients whose debts had substantially increased over the 2020 year. I also predicted that the Australian Taxation Office would begin to be proactive in managing their now $53 billion tax debt pile. You would probably be aware that they commenced minimal proceedings against companies and individuals over the calendar year through 31 December 2020.
What happened in 2021?
Instead of gradually returning to business as post-Covid usual, we went through almost a de Ja Vu moment.
The federal government-backed stimulus continued into March 2021 then ended.
Victoria and NSW both had their share of further COVID induced lockdowns, with various levels of financial support provided by both states that were, in my view, somewhat haphazard in their approach.
Insolvency appointments remained significantly depressed in comparison to pre-pandemic years.
Fortress WA remained shut, Anna in QLD traded pleasantries with Gladys in NSW as to who was effectively managing the pandemic better.
The tax office looked like they would restart enforcement and collection programs in October, but those again appeared to have been put on hold because of other rolling lockdowns in NSW and VIC.
The federal government continued to push for a reopening of the economy and the country with some success (whilst simultaneously attempting to deal with all manner of indiscretions amongst their parliamentary colleagues); and
The omicron variant came calling in mid-December, cancelled Christmas (again for those living in Avalon) and put everyone back into a non-government enforced lockdown for the new year holiday period.
I think that just about sums it up.
On a more serious note, it feels like we are in a similar position to what we found ourselves in at the beginning of 2021, albeit without the federal government assisted stimulus and with fewer dollars in most businesses bank accounts.
So now, what should business owners be thinking about to navigate 2022 successfully?
Review current contracts and agreements, including those around security, to ensure their rights and obligations are understood and are being met.
When necessary, consider seeking advice on whether those agreements need to be amended to consider the changing business environment.
Consider whether the businesses position may be better protected by obtaining additional security from their customers/clients where possible.
Carefully consider any warning signs that customers or suppliers may become or are likely to become insolvent and what the implications may be to the business if they are externally administered.
Seek access to additional capital from trusted capital partners and consider whether there are funding facilities that may need to be rolled over/extended where possible; and
Pick up the phone, work through any other issues that have arisen on the back of the pandemic with their trusted business advisors. Communication is vital in any distressed situation, and it is even more so in these uncertain times.
The team at Cathro and Partners are always available for a private and confidential chat about you or your clients' unique circumstances. Please feel free to reach out to Simon or me directly with any questions or concerns you may have at any time.