Financial gurus bracing for a 'tsunami' of bankruptcies in 2021

Forecasts show a wave of businesses could be facing bankruptcy once the government's support packages run dry in 12 months time.

Financial gurus bracing for a 'tsunami' of bankruptcies in 2021

Australia could face a "tsunami" of bankruptcies when government support packages and existing capital run dry as a result of COVID-19, a lead financial institution has warned.

Malcolm Howell, bankruptcy trustee and partner at insolvency firm Jirsch Sutherland, forecasts that the majority of these bankruptcies will come in 12 to 18 months time thanks to a delay in the economic impact of coronavirus.

The most at risk, says Howell, are small-business owners who have been forced to use personal finances to prop up their businesses during mandatory shutdowns.


"Once the government relief measures expire, many SMEs that have deferred their liabilities are likely to receive a severe capital hit six or more months down the track and might not be able to meet their obligations," Mr Howell said.

"And given a lot of small-business owners often use personal finances for business borrowings – including using their homes as a guarantee – they are more vulnerable."

Mr Howell said signs of an easing house market will put a further dent in the pocket of struggling businesses who hope to use personal assets to offset business debts.

"Any business that has used personal finances for business borrowings is at risk," he said.

"As property prices fall, there is reduced levels of equity with which to finance or prop up a business."

The spike of these insolvencies has been forecast to come in the middle of 2021, after businesses have used the "breathing space" offered to them by the government.

People are seen in long queues outside the Centrelink office in Southport on the Gold Coast, Monday, March 23, 2020.

Financial experts are urging businesses who forecast wearing the hit of COVID-19 in a year's time to seek financial advice before it's too late.

"Seek advice early and talk to your accountant or insolvency specialist," advises Mr Howell. "The relaxed insolvency laws mean you have six months to decide what the best solution is.

"Temporary changes to the insolvency rules will buy people time to seek advice and work on the best solutions available, but we are bracing for a wave of personal insolvencies next year."

Importantly, Mr Howell pointed out that many business owners feel shame or fear in declaring bankruptcy even if it is the result of something out of their control like coronavirus.

"Bankruptcy is a result of circumstances and sometimes it's the only way to recover and to maintain your mental health and wellbeing and that of your family," says Mr Howell.

"Financial pressures affect everybody in the family, not just the individual concerned."

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How Hong Kong survived second wave of COVID-19

Hong Kong's success in surviving multiple waves of coronavirus could offer insight to other cities around the world now looking to relax restrictions.

How Hong Kong survived second wave of COVID-19

Hong Kong's success in surviving multiple waves of coronavirus could offer insight to other cities around the world now looking to relax restrictions.

The major Chinese city had just begun letting its guard down in late February when it was hit by a second wave of COVID-19.

After a brief period of low case numbers, new infections spiked dramatically, prompting a series of additional stringent restrictions.

That second wave now appears to have largely passed. Hong Kong hasn't had a case of local transmission in more than two weeks, and the city is cautiously resuming normal life.

Their success in surviving multiple waves of the virus provides hard earned lessons to other cities now considering a lift on restrictions.

In total, Hong Kong has recorded only 15 new cases since April 20, all of which were people with recent travel history. That brings the city's total to 1041 cases and four deaths. Of those total cases, 900 patients have recovered and been discharged from hospital.

The coronavirus first emerged in mainland China in December, and jumped the border into Hong Kong on January 24. By then, it had already made its way to several other countries.

Hong Kong closed borders and began social distancing just a week or so after recording its first case. But this three-month stretch of working from home, business closures and service suspensions has dealt a massive blow to both the city's economy and the mental health and wellbeing of residents.

Now, with the second wave mostly contained, many are itching to get back to pre-pandemic life.

"I do feel very strongly, and also echoed by many people in society, that the time for some relaxation, for some lifting of the restrictions that we put on this social contact has come," said the city's leader, Chief Executive Carrie Lam, yesterday, shortly before announcing the loosening of some restrictions.

The new guidelines, which will go into effect Friday, will allow more people to gather in public and some businesses to reopen.

But Lam and other health experts are also cautioning people not to let their guard down too soon, as they did in February. With the virus still wreaking havoc on the rest of the world, it's too soon to celebrate, she warned.

"I must stress that this epidemic may come back. As the WHO (World Health Organisation) said not long ago - we must remain vigilant," Ms Lam said last week.

How Hong Kong contained its second wave

In Hong Kong, public panic peaked in early February, with crowds stockpiling toilet paper, face masks and groceries until supermarket aisles were empty citywide.

But the actual number of cases remained relatively low; by the start of March, the city only had about 150 coronavirus cases, despite sharing a border with mainland China where the virus first emerged.

Then, as the coronavirus pandemic moved beyond China and hit the West, shuttering universities and raising alarm, Hong Kong students and residents began returning to the city in waves -- bringing the virus back with them. By the end of the month, case numbers had surged past 700.

The government took quick, aggressive action to curb the second imported wave; they barred non-residents from entering the city, halted travellers from transiting through the city's airport, and implemented strict quarantine and testing measures on all arrivals to the city, regardless of origin. Those under home quarantine were given electronic bracelets to track their location.

The government implemented restrictions like prohibiting alcohol sales in bars and closing all gyms and sports facilities. Many restaurants and cafes closed; those that stayed open had to cut down seating capacity to increase the distance between customers or put up physical barriers between tables.

Though many of these measures were viewed by some as drastic, authorities never ordered an official lockdown or stay-at-home order, relying instead on community efforts and peoples' compliance to contain the virus.

This approach appears to have worked, with new daily cases dropping once again. April 19 was the last recorded local transmission.

Cautious return to normal life

The government and the public are now cautiously turning their focus to resuming life and business in the city and transitioning from survival to healing.

"I think right now the immediate priority is definitely to revive the economy because after all, we have been subject to many restrictions on all you can imagine in the past few months due to Covid-19," said Christopher Hui, Secretary for Financial Services and the Treasury, on May 2.

On Monday, the government reopened recreational and sports spaces like tennis courts, resumed some services like drivers' licence tests and classes, and resumed community services for vulnerable populations like the disabled and elderly.

Starting Friday, the number of people permitted to gather in public will be raised from four to eight. Some businesses like fitness centres, beauty salons, massage parlours and bars will be allowed to reopen, albeit with restrictions like a cap on customers.

Schools will also gradually reopen from May 27, with students returning to classrooms in batches and staggered phases.

The public has wholeheartedly embraced this loosening of restrictions as summer arrives. The past two weekends have seen beaches, hiking trails, and campgrounds packed with people. Restaurants are filling up again, with nightly lines out the door for some, and others booked up for the next few weeks. It's been a long, draining three months of pandemic -- and people are eager to let loose.

But medical experts in the city are warning residents not to relax completely yet. It's too soon to say local transmissions have entirely stopped, said Dr Chuang Shuk-kwan of the Centre for Health Protection on Monday.

Since the virus' incubation period is up to 14 days, authorities would need to see two full incubation periods -- 28 days -- without infections to declare an end to local transmissions, Dr Chuang said.

There is also another concern looming on the horizon now -- the return of social unrest. The city was rocked by six months of often violent pro-democracy anti-government protests in 2019, which came to a halt during the pandemic. Now, there are signs that as the danger of coronavirus subsides, protesters are gearing up to return to the streets.

There have already been a handful of small-scale protests in the past two weeks -- and authorities, too, are getting ready for potential clashes.

"Hong Kong has consecutively seen zero cases of the coronavirus," posted Ms Lam on Facebook last week.

"At the moment we are able to withstand the pandemic - Hong Kong was able to withstand the harsh winter, but I worry Hong Kong may be unable to withstand the resurgence of violence of the continuous devastation caused by politics."

For breaking news alerts and livestreams straight to your smartphone sign up to the and set notifications to on at the or  

You can also get up-to-date information from the Federal Government's Coronavirus Australia app, available on the and the .

Source : 9 News More   

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