Zombie Enterprises Fold as Stimulus Pulled Back
(16 September 2022 – Australia) Uneconomic “zombie” companies are becoming insolvent after the conclusion of COVID government support as insolvency rates return to pre-pandemic levels.
The Reserve Bank of Australia (RBA) expects business failures to increase as rising cost pressures and Australian Tax Office (ATO) round up of outstanding tax debts mount further stress, in particular for the construction and manufacturing sector verticals. Company failures hit a 2.5 year high in 3Q 2022 as 717 firms entered into external administration, data from the Australian Securities and Investments Commission (ASIC) reveals.
Earlier this month Coolabah Capital Investment asserted that up to one in three ASX corporates would be classified as zombies as judged by their ability to produce sufficient EBIT to cover their interest repayments (34 percent).
“Business failures will continue to increase, but this will be a slow burn rather than a tsunami. There are still some zombie companies out there that need to be restructured, or alternatively, put into a formal administration process” commented Clayton Utz Restructuring and Insolvency Partner, Jennifer Ball.