Some answers for the curse of zombie companies
Following our May 5 report on “What will expunge the curse of the walking dead?” – so-called zombie companies that are a blight on the economy -- a survey of 1500 Australian business owners reveals some answers.
The Australian Taxation Office (ATO) provides one answer. Now owed about $34bn by Australian businesses, an increasing number of which are zombie companies never likely to earn a profit let alone pay the tax they owe, the ATO is increasing its efforts to force them to pay up or close up.
Macks Advisory and other insolvency practitioners are also doing what they can by way of advice and restructuring to provide help for the walking dead where that’s possible.
Of participants in the survey, 23% nominated cash flow problems as the main reason for businesses becoming “the walking dead”.
Yet the fact remains many a cash flow problem has been solved by employing the right advice, especially when it’s sought voluntarily, and most especially when sought sooner rather than later.
For an overview of the zombie company curse before reading on, you might like to go to the article, “What will expunge the curse of the walking dead?”
More on what the survey found
Of companies relative to the survey referred to above, 21% said “inadequate systems” and “poor planning” were prime causes of businesses being forced to join the zombies.
But because inadequate systems and poor planning (21%) are considered prime causes of zombieism, and cash flow problems are blamed predominantly for 23% of the problem, this means 44% of zombie companies derive from faults that may well have been fixable by timely, expert intervention.
Other survey respondents (11%) claimed the ATO’s accelerated campaign of tax recovery was the principal cause of an increase in Australia’s zombie companies, and 16% attributed the phenomenon to “market conditions”.
This is despite it being patently obvious adequate systems and good planning will take care of businesses’ ever present and well-known need to fulfil tax obligations.
It’s always possible that unforeseen market conditions, over which a business may have no control, can catastrophically affect it.
However, the 16% of respondents that blame market conditions for the plight of zombie companies, overlook the simple truth that most market conditions are foreseeable, and that being the case, good systems and planning would go a long way towards lessening affects of unfavourable marketing situations.
Conclusion: much of what 71% of companies surveyed claim are causes that force businesses to join the walking dead, stem in fact from problems that could have been lessened, perhaps even totally avoided by employing sound business principles -- if not from a business’s inception, then before its problems became unsolvable.
Help can be maximised now
Business owners and directors should appreciate that zombie companies have only been able to survive in Australia more easily than in the UK, Europe or the US, because of the mining boom and, in many instances, because of extensive government support packages.
However, the boom is a thing of the past. Furthermore, whoever governs after July 2, will have to be in belt tightening mode, and interest rates, now at unprecedented lows, will assuredly rise in the not-too-distant future.
That means if your client is a zombie company with no profit in sight, existing in miserable limbo, then its prospects of survival are diminishing.
The prospect of eventual interest rates rises and increasing tax recovery activity by the ATO will make financiers even less accommodating with business loans and creditors even less accommodating with repayment plans.
In these circumstances chances of successfully restructuring troubled companies are lessening.
Irrespective of whether financially stressed companies can or can’t be saved, operators should understand the best chance of putting everyone associated with such companies in the most advantageous position that circumstances will allow, is to get professional help now.
For more information, contact Macks Advisory on 08 8231 3323 or visit our office on Level 8 West Wing, 50 Grenfell Street, Adelaide SA 5000.
