Continued government support is crucial to save businesses: Harley Dale

EXPERT OBSERVER

It is crucial that the Federal Government continues to provide support to businesses and households in a year of unprecedented economic challenge.

However, whilst the decision to apply US-style Chapter 11 bankruptcy laws that will allow small businesses to trade their way out of insolvency is well-intentioned, it will do little to generate jobs and growth down the track.

In August, RBA Governor Phillip Lowe warned that a considerable number of insolvencies would emerge, with many businesses unlikely to recover from the ‘forced economic hibernation’ imposed in March.

That remains the case, regardless of any legislation that allows companies to continue trading while insolvent.

New CreditorWatch data has shown that new company registrations across Australia have increased by 10% in the July-August 2020 period. However, these companies will fail if they take on customers that are never going to survive without government support

.The focus should therefore be on those small businesses who have a viable capability of emerging from the COVID environment with their balance sheets intact and an ability to successfully trade without government support.

There’s a lot of uncertainty out there for creditors as they don’t quite understand how this will affect then.

Ultimately, if it helps businesses survive or at least flattens the inevitable insolvency curve, it’s a good thing. The government should be commended for working on such big policy changes in short pressure-filled time.

HARLEY DALE is the Chief Economist at CreditorWatch