How global health can affect your company
This is seen as global travel bans, social distancing policies and essential service restrictions that prevent certain businesses from operating at optimal levels.
Tied with a drastic reduction in tourism, local population movement and reduced business activity as companies protect their financial stability, you may be facing long-term damage to your cash flows, making your business insolvent.
Should this occur, you may be forced into company liquidation.
How Coronavirus has affected Australia’s economy
Impacts of COVID-19
Since March 2020, businesses across Australia have felt increasing pressure as a result of COVID-19. To get a sense of the national impact of COVID-19, the Australian Bureau of Statistics surveyed 3,000 businesses and found that almost half of the Australian businesses surveyed (49%) had been affected, and this was reportedly before the Australian Government’s announcement of Phase 1 Social Distancing Measures.
Adverse impacts of the pandemic include reductions in local demand, which was the most common impact (82%) experienced as a direct result of non-essential travel restrictions and social distancing which was introduced to help ‘flatten the curve’ and limit the virus’ spread across the country.
Since March, more than a third of affected businesses also experienced staff shortages (36%). Due to the ongoing travel and interaction restrictions, 59% of businesses expected to experience staff shortages in coming months.
Australia’s Accommodation & food services sector has been the most affected by adverse impacts of COVID-19, with 78% of businesses (or more than three quarters) already reporting impacts and 96% of businesses reporting that they expected impacts in coming months.
The ongoing pandemic
Cash flow has become an increasing issue for businesses as the pandemic forces new behaviours. Without a consistent stream of customer spending, or new projects or client contracts, two thirds (66%) of Australian businesses reported that their turnover or cash flow had reduced.
When cash flow is reduced, many businesses find it difficult to maintain a steady rate of operations. Nearly half of businesses (47%) have been forced to make changes to their workforce arrangements as a result of COVID-19. These arrangements include:
- Temporarily reducing or increasing staff working hours;
- Changing the location where staff worked (including working from home); and
- Placing staff on leave.
Many businesses have also been forced to restructure their business model to stay afloat. Two in five businesses (38%) have changed how they deliver their products or services, including shifting to online services, and over a third of businesses have renegotiated their lease and rental arrangements and a quarter have deferred loan repayments.
Looking ahead – business outlook as a result of COVID-19
Restrictions have begun to ease in several states and many politicians across Australia, at both state and federal levels, are looking to the future to gauge when activity can gradually reach a point of pre-COVID-19 familiarity.
Slowly but surely, life is expected to return to normal. However, the economic effect of self-isolation and restrictions on travel and non-essential retail is expected to leave a significant dent in many businesses, as the return of ordinary consumerism and trade may not be quick enough to recover from the debt incurred during the pandemic.
The ABS said that almost three quarters of Australian businesses (72%) reported that reduced cash flow is expected to have an adverse impact on business over the next several months. Reduced demand for goods and services was expected to impact about seven in ten businesses (69%), while two in five businesses (41%) could face significant challenges in paying operating expenses.
All data, graphs and statistics were sourced from the Australian Bureau of Statistics and its range of existing and ongoing statistical products produced exclusively to measure the impacts of COVID-19.
What happens if Coronavirus leads me to company liquidation?
If your company has become insolvent due to the pandemic, you may need to liquidate your company. This involves an independent and suitably qualified person (the liquidator) taking control of the company so that affairs can be wound up in an orderly and fair way for the benefit of all creditors.
There are several ways to approach liquidation, based on your company’s financial situation:
- Creditors’ Voluntary Liquidation
- Members’ Voluntary Liquidation
Alternatively, a creditor may file a winding up application with the courts.
However, as a result of the ongoing effects since the initial Coronavirus outbreak, temporary legislation regarding liquidation was introduced by the Australian Government on 24 March 2020 to alleviate financial pressure on companies.
These measures includes increasing the minimum amount of debt a creditor can rely upon to file a winding up application and extending the timeframe that a company has to respond to a creditor’s statutory demand. The temporary amendments also included measures providing limited relief from insolvent trading provisions.
Should the economic effects of Coronavirus cause your company to face liquidation, it is important to speak to one of the professional insolvency experts at Insolvency Guardian for more information about your situation and your options.