An early survey of insolvency professionals in Australia in relation to the impact of COVID-19 reveals an apparent contradiction, that insolvency firms, whose work depends on businesses struggling or failing, are themselves are being adversely impacted by the economic conditions.
There are reported to be significant falls in insolvency work, insolvency firms registering for the government JobKeeper assistance, others implementing redundancies, and concerns from some firms about their continued viability.
The survey was conducted on 17 April by the professional body in Australia, ARITA, to gauge the impact of the coronavirus and government response to it. The survey was of ARITA’s own members with a response of nearly 200.
KordaMentha and TMA
In contrast to ARITA’s focus on the industry itself, another survey focuses on business generally and how various sectors are being affected and are responding, and whether the insolvency and restructuring system itself is adequate to respond. This is being conducted by KordaMentha Corporate and TMA Australia. It is open to all and closes on 4 May.
Decline in numbers
Australia already had a decline in the number of insolvencies leading up to COVID-19, with bankruptcies at their lowest level since the 1990s. Corporate insolvencies were also low in number. There were insolvency firm consolidations and break-ups, and individual practitioners moving to advisory and other services.
The need for insolvency firms to adapt to those and other changes has now been added to by the sudden impact of COVID-19. In particular, the ATO is unable to bring bankruptcy or liquidation proceedings and is otherwise offering payment concessions to business.
Practitioners are said to be facing lower market values for assets, and difficulties in taking possession of assets and in trade-ons, and engaging with creditors online, all in an environment of heightened business uncertainty and anxiety. There is said to be potential for unlawful phoenixing and misuse of government moneys. Regulation is being conducted more online and the courts and lawyers have largely moved online.
In particular, the ATO is unable to bring bankruptcy or liquidation proceedings and is otherwise offering payment concessions to business. The survey responses may be revealing the extent to which some insolvency practices unduly rely upon tax referrals.
Even before this current crisis, there were concerns about insolvency firms’ capacity to adapt. Pre-2020 surveys of insolvency practitioners about their own business plans had revealed some lack of planning for the future, in particular in the adoption of technology.
See for example my comments:
- Digital disruption is here but “progress towards a digital insolvency practice has to date been slow”
- A health check of the Australian corporate insolvency system
- Selfies of Australian insolvency practitioners – not looking good …?
The future is now here and whether those survey outcomes are substantiated may well be answered in how firms adapt and whether some of the dire survey concerns become reality.
It should be that the volume of work coming will restore the position for many firms, though that has the potential to defer further planning. It is expected that there will be a high number of assetless administrations which a private market, already under stress, may not be able to meet.
To some degree, the capacity of insolvency to meet the future lies in the hands of the legislators and the regulators. At present, the law imposes limitations in online communications; the focus on ‘forms’ in corporate insolvency is profound; streamlined processes are limited; and the ability to innovate is restricted by prescriptive and inconsistent regulation. But AFSA’s ‘digital first’ strategy and move to cloud services are promising.
Nevertheless, the need for practitioners and their firms to anticipate and adopt new approaches is there, now made the more imperative by the current crisis.
The results of the TMA survey, among other and on-going survey information, will add more to the picture.