Post Pandemic Business Protection

On 25 January 2020, life in Australia drastically changed forever following the identification of the first Covid-19 case in Victoria. Since then, Australian businesses have been faced with multiple state-based travel, movement and gathering restrictions, and having to constantly change their operations to comply with the ever changing regulatory landscape surrounding the Covid-19 pandemic. There appears to be some respite on the horizon with the recent easing of lockdowns in Victoria and New South Wales. But what can small businesses really expect in the short-term future, and how do they future proof their operations and existence.

Where are we now?

As matters currently stand, not all small businesses are equal, some having fared better than others either because they were in an industry with high demand for their products during the pandemic, were able to pivot to other revenue streams, and were otherwise able to manage overheads and weather the storm.

CreditorWatch’s monthly Business Risk Index has pegged a 5.97% likelihood of food and beverage industry businesses defaulting on payments, which is higher than the national average, and one of the primary indicators of the likelihood of future insolvency. The construction industry is at similar risk topping the list in late payments, having been arguably hit the hardest in NSW and Victoria due to the lockdowns.

Despite this and the effects of the global pandemic, SME’s have been fortunate that the Federal and State governments intervened to keep businesses afloat with support and emergency relief measures such as the:

1. extension of time for compliance with bankruptcy notices and statutory demands from 21 days to 6 months
2. minimum $20,000 debt required to issue statutory demands after the passing of the Corporations Amendment (Statutory Minimum) Regulations 2021 (Cth), down from the emergency relief measures
3. minimum $20,0000 debt requirement for issuing bankruptcy notices 
4. ATO adopting a “soft debt recovery” approach and holding off on their pursuit of tax liabilities 
5. JobSaver and JobKeeper programs 
6. NSW Covid-19 Small Business grants 
7. small business debt restructuring process for businesses with liabilities under $1 million

Many initiatives have been rolled back or will be or removed entirely including:

• the minimum debt threshold for issuing bankruptcy notices has been reduced from $20,000 to $10,000
• the time for compliance with bankruptcy notices and statutory demands have returned to their pre-pandemic time limits (i.e. from 6 months to 21 days)
• the minimum debt threshold for issuing statutory demands has been reduced from $20,000 to $4,000 
• JobSaver payments in NSW ended on 30 November 2021
• the NSW Covid-19 Small Business grant payments ended on 30 November 2021
• commercial rent relief in NSW is scheduled to end on 13 January 2022
• payroll tax deferrals in NSW remain available until 14 January 2022

During the time various relief measures have been available, we saw an increase in deferred lodgement of business activity statements, many businesses were deferring payments or on reduced rent to landlords, and importantly, tax liabilities including interest charges were not being paid to the ATO. Those measures also meant that creditors simply weren’t being paid.

As at 30 June 2021, the ATO reported that SMEs comprised 62.6% or $21.4 billion of $34.18 billion in tax nationally. There are growing fears that significant unreported debt is also dragging down businesses also. These figures paint a bleak picture for businesses that were able to stand on their own feet during the pandemic, that now risk being pulled down by the effect of the relief measures in keeping businesses afloat that perhaps should have been allowed to fail.

With the ending of the majority of relief measures for businesses, it is now time to start repaying debts and hope that we are truly on the tail end of the pandemic. Only time will tell what effect this will all have on business solvency going forward.

Protecting your business now and into the future

If the current global pandemic has taught us anything, it’s that further disruption to business operations may be the rule, not the exception going forward but we are hopeful that we are well and truly out of the woods.

If you haven’t taken the steps to safeguard your business, such as deploying IT infrastructure to allow remote access for staff and e-commerce where applicable, reviewing your business model and SWOT analysis to identify your strengths, weaknesses, opportunities and threats, then your business risks becoming a statistic in the coming inundation of insolvencies and restructuring.

There are many strategies available to produce a tailored solution to address the problems faced by small businesses. If caught early, many of these issues can be dealt with effectively to prevent them from snowballing out of control. It is therefore more important now than ever to rely on quality advisory services of an insolvency practitioner to assist small businesses perform a health check to deal with any current major issues, and to refine their strategic plans to ensure profitability and survival in the coming years.