The retail industry may have suffered a huge setback in December with trade falling by 0.1%, seasonally adjusted, but insolvency experts say it may still be many months before small businesses start feeling the impact.
Dissolve chief executive Cliff Sanderson also says it’s not the retail industry that’s currently suffering the most right now, but building and construction companies.
“It could take a long time,” he says. “It’s awhile before a company enters some form of formal administration, and there’s usually a gap between all the steps.”
“The first step is you go broke, the second is that you stop trading, and the third is when there’s usually a gap, where the creditors or directors mull over their options. That can be a minimum of a few months, so you’re looking at a process that takes about a year.”
Sanderson suggests the retailers which have experienced a slow Christmas may not stop trading until sometime during the next few months, and therefore may not enter insolvency until the second half of the year.
“It’s good to remember that insolvency numbers didn’t peak for three years after the recession in the early 1990s. Insolvencies peaked in 1991 after the 1987 crash. It takes quite awhile for these things to occur.”
Most businesses tend to believe they can continue without changing much, Sanderson argues, saying SMEs continue trading longer than they really should.
“They will struggle longer, and it just takes a long time before they enter some form of insolvency. But it does happen.”
Sanderson also says it’s not the retail industry that’s hurting the most right now, but the construction industry, which is experiencing a higher number of insolvencies.
Jim Downey of Downey & Co. agrees, saying it’s the construction industry that he sees suffering the most. However, he agrees retailers are feeling the pinch and that it may take awhile before official insolvency statistics start reflecting what’s actually going on.
“Having spoken to a few colleagues, we’re a little bit surprised we’re not busier than we usually are. Whether that’s because Australia shuts down in January, it’s hard to say.”
Downey says it’s the Tax Office that is usually the trigger for these types of insolvencies, and as businesses have an extra month in the December quarter to file, insolvencies may not appear on statistics for a few months.
“The BAS isn’t due til February 28, and that’s usually a bit of a killer one. It’ll be another month after that before the ATO puts the pressure on, so you may expect March and April to tick up a bit if there were to be any activity.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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