Administrations surged 61% in February

There has been much talk about the fate of Australian small business come the end of March with the winding back of Jobkeeper and the close of the insolvency protections put in place by the government throughout COVID. CreditorWatch’s latest monthly risk review shows monthly external administrations rose 61% in February – the highest the figure has been over the past year. But while this indicates a rise in insolvencies, the number is still below pre-pandemic levels, said CreditorWatch CEO Patrick Coghlan.

“If you compare Feb 2020 to 2021, we’re still well down,” he said. “We’re down 40-50% on that pre-COVID number. So, while it is a big increase, we’re still down on what we would normally see in a normal trading year.”

He expects the number of administrations to continue to climb and reach 2019 levels over the next couple of months before plateauing for some time.

Read more: Risk to small business still significant

“I think the economy and business are in a fantastic position,” he said. “There isn’t going to be this tsunami of insolvencies that we were all expecting mid last year when Jobkeeper and safe harbour provisions were going to come to an end. That’s a real positive.”

Consumer and commercial confidence are also very high at the moment, though some uncertainty remains around how the end of Jobkeeper will impact the economy, he added.

“People are investing again,” he said. “They’re looking to hire and they’re certainly bullish about the future - which is a fantastic position to be in. No-one really expected to be in such a positive economic place compared to where we were thinking we would be six to nine months ago.

“Ultimately, once we hit April, we will be in a normal trading environment, whereas at the moment, we’re still in that synthetic environment with protections and stimulus packages in place to assist those companies that are really still struggling.”

Coghlan said brokers can best help their SME clients by encouraging them to seek advice from an accountant or a restructuring or insolvency specialist.

Read more: Five things brokers should be discussing with SME clients right now

“Just because you go and speak to one of those professionals, it doesn’t mean that you are going to lose your company, so there’s often plenty of options out there,” he said. “Interest rates are at record lows so there’s good liquidity in the market and availability of funding. Brokers really should be positioning themselves as an educator, as a subject matter expert, and providing that sort of advice and direction for their small business clients.”