I was recently asked why I wasn’t flooded with new work and when I expected it to happen? Like everyone I don’t have a crystal ball but I do have facts upon which to estimate when things will happen.

Tsunamis, while sudden and devastating when they hit, don’t just happen, we know the waters along the shore first flow out in an abnormal ebb.

The equivalent is happening now as JobKeeper 2.0 tapers down, the Insolvent Trading moratorium ends[1] and the commercial eviction moratorium ends1 for NSW and Queensland. The A.C.T will end its commercial eviction moratorium from 21 January 2021 and South Australia, Victoria and Western Australia on 31 March 2021. JobKeeper is to finish on 31 March 2021 also, albeit already at reduced rates.

Add to this, the effect of reduced unemployment benefits, recommenced ATO collection activities and the usual end of financial year realisations by those that have not engaged with their advisors and the receding of the economic water will have taken full effect.

The final key factors that will impact on when personal insolvencies increase is the cessation of temporary changes after 31 December 2020. The first of these being the minimum debt to bankrupt an individual increasing to $10,000 from the pre-Covid minimum of $5,000 but still significantly reducing from the temporary $20,000 threshold. Further, like corporate insolvencies, the 6 month period to respond to a demand reverted back to 21 days1.

So when will the Tsunami hit the Australian economic shores? Looking at Risk Watch[2] there is no dramatic increase in liquidations. Further there have been no applications of the new Small Business Restructuring option to date.

Will everyone be liquidating their companies and declaring bankruptcy now? No, business has and will remain reluctant to pull the pin despite the realities of their financial position. It will require creditors to act, as it usually does before business owners accept the fate of the impact of Covid-19 and the hopelessness of their situation. It is human nature not to give up, akin to a terminally ill patient who gasps for their next breath.

I don’t foresee  there will be a Tsunami, but I do expect there will be a sustained number of king tides over the next 2-3 years. Even in the absence of ATO windups, I expect the constant king tides will drive off creditor recovery actions now the time to respond to a demand is back to 21 days and the minimum debt for corporates back to $2,000 and $10,000 for individuals. Those processes will create two distinct groups being those that are forced to realise the hopelessness of their situation and those that keep their heads in the sand and await the inevitable windup/sequestration process to finalise.

Those companies accepting their fate or forced to accept their fate by creditors will instigate either the new debtor in possession process, voluntary administration or creditors voluntary liquidation[3] and individuals entering into bankruptcy or Part X arrangements. Those numbers are likely to grow from 1 April 2021 onward.

Those who let the process take its course will be bankrupted or liquidated over a longer period as the legal processes run their course at between 3 – 6 months.

Will this apply all at once? No, it never does. There will be deals made with some creditors, failed attempts to subdue pressure for payment, limited compassion that runs out, juggling of limited funds, informal arrangements that fall over and a myriad of factors at play. The process will stretch over 1 to 2 years, if not more.

There will be other legislative avenues that will impact how things play out too. Perhaps the best example is the draconian legislation that still applies in South Australia and Tasmania that permits Distraint by Landlords. From 1 April 2021, Landlords in South Australia will commence issuing for unpaid rents once the moratorium period ends. Notices for unpaid rent (but not any other unpaid debts) giving the tenant 14 days to pay will become common place as tenants cash flows don’t permit them to pay rent at reinstated values and on time. This situation if not rectified will allow the Landlord to take possession of the company’s assets and sell them at auction, thereby rendering the company unable to trade without assets and stock.

Given the financial distress of many mum and dad property owners forced to provide reduced rent while their funding was at best deferred, it is very likely the demand by Landlords placed in very difficult positions will be numerous. Insofar as it applies to South Australia, in the absence of the State Government finally removing such laws like the balance of the mainland Australia, a directly related King Tide is expected between March and December 2021.

The last word? Insolvency practices have had the last 9 months to clear old jobs and even advance current files faster than is normally the practice. The next 3 months is unlikely to see a tsunami, but there is no doubt some rough water ahead with king tides and rips that will see our economic shores a dangerous place to swim.

[1] Ended 31 December 2020.[2] Risk Watch is produced by Rodgers Reidy and available free by subscription at Subscribe here[3] Depending on qualifying criteria and circumstances.