Zombie Companies Are Starting to Get Flushed Out of Australia’s Commerce System

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The number of businesses going bankrupt in Australia has increased, exceeding the pre-pandemic levels.

The Australian Securities and Investments Commission (ASIC) released its insolvency statistics on Tuesday. The report showed a more than three-year streak of businesses that went bankrupt. In March, enterprises failed to continue their operations. 

There has been an upward-sloping record of collapsing businesses due to “zombie companies” that thrived during the pandemic as the Australian Taxation Office had its regulatory break. The zombie-type companies earn just enough to continue their operations and services but cannot pay off their debts.

Aside from the comeback of ATO’s renewed activity, many insolvency lawyers blame the ballooning numbers on other factors. These triggers include inflation, cost-of-living demands, a slow economy, and rising interest rates. 

Food services, accommodation, manufacturing, retail, and construction are among the sectors that had their fatal insolvency hit. 

Bradd Morelli, the national managing partner of mid-size insolvency firm Jirsch Sutherland, blamed the tax office’s “threatening letters.” This so-called “primarily ATO-driven” issue started its first wave of inoperational businesses in May last year. 

“You saw a second wave there a few months ago, which is more reflective of what’s going on in the building industry, which is driven by some of the broader issues — staffing, fixed pricing, price of materials, supply chain issues, and the like,” Mr Morelli said.

As businesses struggle to keep up with the pressure of staying ‘in business,’ the burden will be shared with their consumers as the prices of goods appreciate. The consumers will then be pushed to find extra income because of this. 

However, the current rise in insolvencies, on the other side, to be productive – “From a broader picture of the Australian economy, you don’t want a business out there that doesn’t make money, doesn’t pay its taxes, struggles to pay its suppliers, that’s unproductive. You want businesses that do well, employ people, pay taxes, pay super, invest in R&D. Some of these businesses that are failing should have failed pre-Covid,” said Mr Morelli.

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