Insolvency
Revenge of the zombie company? By Chris Hadley MICM, Andrew Tanna MICM and Jessica Georges* Revenge of the Zombies is a 1943 horror film in which zombies exact revenge on their mad scientist creator. Although there are not many mad scientists on the scene in 2020, there are many zombie companies which, if subject to liquidation, are likely to create an influx of preference claims being brought by liquidators and which will cause grief to credit managers in the coming months and years. For those unacquainted with the term, a ‘zombie company’ refers to a business which exists but which is largely artificially sustained by external and artificial sources and factors, including the recent massive Government spending (including via the JobKeeper program) and deferrals
of liabilities (including BAS, payroll tax, and rent commitments). Those zombie companies, which continue to accumulate liabilities and rely on outside assistance for survival would, but for changes brought about by COVID-19, ordinarily have failed and be placed into administration or liquidation much sooner.
By all measures the outbreak of COVID-19 has resulted in significant disruption to large parts of the economy and has impacted the credit function of many businesses. The latest ABS statistics show that Australia’s GDP fell 0.3% in the March quarter and 7% in the June quarter (which was the largest
quarterly drop since records began). Two consecutive quarters of negative growth means that Australia is officially in a recession. By now all credit managers will know that, in response to the impacts of COVID-19 on the economy, in March 2020 the Federal Government introduced “temporary” changes to rules affecting common insolvency and bankruptcy processes which have typically been used by credit managers in recovery action. The measures increased the minimum amount of debt required to be owed before a creditor could issue a Bankruptcy Notice (from $5,000 to $20,000) or a Statutory Demand (from $2,000 to $20,000) and significantly increased the time
Chris Hadley MICM
Andrew Tanna MICM
Jessica Georges
50
Disruption and change
CREDIT MANAGEMENT IN AUSTRALIA • October 2020
