COVID Safe Harbour “long catastrophic wave of insolvencies”

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Alan Kohler says that because of the COVID Safe Harbour, we should brace for “long catastrophic wave of insolvencies”.

A wave of insolvencies is set to hit Australia, adding to the thousands of unemployed due to COVID-19.

Apparently, up to 100,000 businesses could go under in the next few years. As Kohler explains, it’s all pivoted on the temporary COVID-19 Safe Harbour for these companies being extended.

The COVID Safe Harbour became effective in March 2020 and gives automatic protection to directors from insolvent trading personal liability provided debts were incurred in the ordinary course of business.

Alan Kohler:

“The Corporations Act was amended in March to allow businesses to trade while insolvent for six months. It’s usually an offence. This ends on September 25th.

“Demand for air travel and tourism has virtually collapsed. And that has virtually disappeared…

“There are thousands of businesses that depend on people travelling. Like retail, restaurants, security firms and caterers…

“Private data shows the average delay in paying invoices across all industries has blown out from 11 to 49 days…

“Safe harbour is keeping thousands of zombie businesses from going to the wall.

“Insolvencies caused from the GFC peaked in 2012, four years later. And that’s what always happens. The average time between a business going insolvent and admitting it is 18 months…

“Expect a long, catastrophic wave of insolvencies that will lead to higher unemployment and pressure on banks.

Expect a tsunami of insolvencies – due to the COVID Safe Harbour ending on 25 September

The COVID Safe Harbour should not be confused with the 2017 Insolvency Safe Harbour under section 588GA of the Corporations Act. In addition to other key criteria, directors need to seek the advice of an appropriately qualified entity to ensure they are not held personally liable for debts incurred directly or indirectly with pursuing a better outcome for the company through restructuring and turnaround strategies.

Directors looking to transition to the 2017 Insolvency Safe Harbour should seek advice immediately

Search the ABRT Professional Directory to find an appropriately qualified entity to guide you through the process and help you to rescue your business.

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