Experts warn of further business collapses and the construction sector will be the most affected

“You can call them zombies or just call them companies that only exist because of all the support and cushioning. When held accountable, they are likely to fold.

Restructuring services partner of KPMG Morgan Kelly has worked on several large administrations and liquidations, notably in the hospitality, finance and mining services sectors. Credit:Daniel Munoz

Morgan Kelly, a partner at KPMG specializing in restructuring services, warned that these unsustainable “zombie” groups risk infecting healthy businesses if allowed to continue.

“Whenever we talk about a struggling business, it’s not a low-key issue. This affects everyone who has dealings with this company.

“When companies collapse, they take other companies with them. This is why the concept of a zombie society is important, because the longer these companies drag on, the more the counterparties continue to provide services or goods, and suppliers will not be paid for these, so there is a contagion effect.

“It’s important to note, however, that sometimes zombie companies won’t know they’re zombies and no one else will either.”

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Kelly is particularly concerned about rising costs for businesses, including higher labor costs and the rising cost of goods and services, caused by the squeeze in the supply chain.

“While these input prices continue to rise, you have limited revenues in certain industries, through an inability to execute.

“If you can’t deliver, you can’t sell, you can’t serve, you can’t do what your business does, and your income is limited.

“At the same time, your profits are also lower because the cost of everything you need to provide,
including labor costs, increased.

Workers at a Probuild site in Melbourne collected items before leaving after learning of the group's collapse.

Workers at a Probuild site in Melbourne collected items before leaving after learning of the group’s collapse. Credit:wayne taylor

Shepard, who was the lead administrator of the Grocon group of companies that collapsed in late 2019, said the construction industry was of greatest concern at the moment.

“Construction certainly gives us more opportunities on a formal and informal basis. It’s at all levels, from large construction companies to developers dealing with stressed builders and construction companies dealing with struggling subcontractors.

Shepard says the first groups to feel the stress will be mom and dad’s contractors, meaning those small businesses that service or supply the construction industry that are family run and don’t have not have the financial capacity to cover the loss.

“Many of these companies will have fixed price contracts or similar agreements that do not allow them to pass on rapidly moving cost increases. There might be an ability to pass on some costs, but many of those costs are now much higher than they are able to pass on or absorb.

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“So if you have contracts related to pre-COVID construction and you are still working there. You probably work for nothing.

The ATO has always been one of the most common creditors in a corporate collapse. She confirmed that she has increased her fundraising activity over the past two months.

“We understand that many people – especially small businesses – have struggled with COVID and may now have tax debt,” said ATO Deputy Commissioner Vivek Chaudhary.

“Our message is – don’t put your head in the sand – even if you cannot pay the full amount due immediately, please contact us or your registered tax advisor to discuss this and we will work with you to put in place an appropriate procedure. payment arrangement We cannot assist taxpayers who do not engage with us.

Chaudhary said where taxpayers weren’t engaging with the ATO, the agency was taking stronger action.

“Our debt collection activities prioritize taxpayers representing higher risks and unwilling to engage. That is why we will initially focus on taxpayers with higher debts before including taxpayers with all other debts.

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