2021 OR 2020 2.0?
Reflecting on 2020 as an insolvency practitioner, it's been a year like no other I have experienced in my career. Off the top of my head 2020 bought us:
- A once in 100-year pandemic leading to public health orders locking us into our homes, and unheard-of levels of economic stimulus being injected into the economy (and now large national debt).
- Closed state and international borders.
- Australia's first quantitative easing program.
- A recession where the rate of business failure was reduced by over 50% compared to the previous non-recession year.
- The biggest changes to insolvency law in almost 30 years announced, formulated, legislated, and enacted in a less than three months.
Have I missed anything?
Coming into the first quarter 2021, the support provided to individuals and businesses alike in 2020 is being peeled away.
The government's temporary measures around insolvent trading and debt enforcement ended on 31 December 2020 and others will be concluding in March 2021 (JobKeeper, business loan deferrals).
Those businesses that managed to survive in 2020 will find their ability to navigate their rights and restrictions when dealing with customers, contractors and suppliers will become even more critical to their continued survival in 2021.
It is only a matter of time before creditors take steps to enforce on debts as per the ordinary course, and many companies will find themselves in a position where they are unable to pay and are forced to close.
So, the important question owners and directors must ask themselves becomes how do businesses proactively manage these risks?
My top tips are as follows:
- Double check: Review current contracts and agreements, including those around security, to ensure your rights and obligations align with the timelines associated with the end of the government stimulus support.
- Consult a professional: Where necessary, consider seeking advice around whether any of those agreements need to be amended to take into account the end of those stimulus measures.
- Protect yourself: Consider whether your position may be better protected by taking additional security where possible.
- Pay attention: Carefully consider any warning signs of customers or suppliers that may become, or are likely to become, insolvent and what implications it may have for your business if they are put into external administration.
- Source funds: Seek access to additional capital from trusted capital partners or consider whether there are funding facilities that may need to be rolled over/extended in line with the end of the government stimulus measures.
There are also opportunities for directors to consider restructuring their company's affairs, utilising access to the current stimulus measures as breathing space to allow that to occur.
Where there is sufficient uncertainty around the business's ongoing solvency, voluntary administration or a small business restructuring plan should be strongly considered. Please don't hesitate to contact myself or one of my fellow Worrells partners should you wish to discuss your or your clients' circumstances on an obligation-free basis.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.