Article by Mark Davidson, Manager, Pearce & Heers’ Gold Coast Office.
It is anticipated that from mid-2021 onwards there will be a significant increase in insolvency appointments as various government stimulus packages come to a close. Just recently in South East Queensland, there has been collapse of CLD Civil & Earthmoving Pty Ltd, Bayside Gate Frames Pty Ltd and G.W. Civil Contracting Pty Ltd which indicates there will be tough times ahead.
The Building Industry Credit Bureau (BICB) has predicted problems the building and construction industry will face over the next 12 months and beyond. In this regard, from April to December 2020, construction-related insolvencies were down 50% and the BICB consider that there were approximately 550 fewer construction insolvencies during this period. This was due to the Government’s Covid-19 stimulus keeping businesses afloat and lack of recovery action being taken by creditors. These 550 companies could be businesses with actual projects underway or zombie companies just waiting for Jobkeeper to end.
The BICB forecast that there could be approximately 1,690 construction industry insolvencies in 2021. Further, they expect the number to increase to 1,930 for the financial year ending 30 June 2022. These are just construction figures and do not include insolvency appointments from other industries.
The numbers estimated by the BICB appears realistic. Insolvency appointments are at a historical low and will move up in a steady increase over time. The BICB have noted that most of the appointments are expected in the calendar year 2022 rather than in 2021.
Pearce & Heers’ future predictions
Our view as insolvency practitioners is similar to this prediction. No tidal wave of insolvency is expected, but there will be an up-lift in insolvency numbers in 2021 and 2022. Two of the key drivers of insolvency in the economy are the RBA cash rate and ATO recovery action. Both of which are at all time low levels and whilst they remain low, the level of insolvency will stay steady too. An increase in these drivers will see insolvencies start to rise.
Philip Lowe of the RBA advised that he expects “that the cash rate is very likely to remain at its current level until at least 2024”. Further, the ATO significantly relaxed its recovery actions and advice from many accountants is that they are happy to allow generous extensions to pay and are providing information which is similar to when the GCF hit. This current sentiment from the ATO will not last forever, given that the ATO’s collectable debt has increased by $8 billion from $26.6 billion to $34.1 billion in the 2020 financial year. The ATO will want to collect on this debt in the future.
Advice and assistance
If you are in the building industry (or any other industry) and need assistance, please contact our Brisbane or Gold Coast office. We will be able to advise how we can assist you in an initial obligation free consultation.