The government will let Australian businesses rack up bad debts with no repercussions until 2021
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The federal government has granted a last-minute extension to allow businesses to continue operating while insolvent.
While Australian businesses are normally compelled to suspend trading if they cannot pay their bills, ‘Safe Harbour’ rules have helped keep businesses operating throughout the COVID-19 pandemic.
Like many interim measures, the relief measures were scheduled to wrap up at the end of September.
However, on the back of the largest single quarterly contraction on record in the economy, the Morrison government has extended the provisions until December 31.
“These changes will help to prevent a further wave of failures before businesses have had the opportunity to recover,” Federal Minister for Industrial Relations Christian Porter said in a statement.
“The changes will also extend the temporary relief for directors from any personal liability for trading while insolvent.”
While struggling business owners may welcome the relief, it does put the business community in a quagmire, as they weigh up whether or not things will markedly improve by January.
The nation’s creditors meanwhile had urged the government to let the provisions expire, warning there would be thousands of ‘zombie’ businesses operating that would normally have tied up their operations.
While those doomed to close continue to operate, they can continue to rack up bad debts that will end up eventually hurting the economic recovery, according to CreditorWatch.
“There will almost certainly be a deluge of insolvencies when the moratorium ends, prompting a catastrophic decline in business confidence and derailing any opportunity for near-term economic recovery,” it warned.
The extension then may only push back a larger wave of business failures to come in January 2021.