Source: ASIC 2020, Insolvency statistics Series 1
The data suggests that if 2020 had been similar to the previous two years, then an additional 800 businesses (on top of the existing 2,880) would likely have entered external administration by now, and a further 1,400 would do so before the end of the year.
Unfortunately though, 2020 is far from being similar to recent years, so the expected backlog of businesses that may fall under once temporary relief measures and changes to insolvency rules are lifted could be much larger than that estimated above.
While we don’t know how many companies may face collapse in 2021, we can get an indication of the scale from ABS data that reveals 31% of all Australian companies were still facing monthly revenue falls in October. While this is much fewer than the 70-80% of businesses that saw revenue tumble back during the height of COVID-19 in Australia, it does show that there is a substantial proportion of businesses that are continuing to fall behind even as the economy opens up.
On the composition of businesses that are still struggling, the majority are small businesses (sole traders through to companies with up to 19 employees). There are also higher than average shares of businesses that continue to lose revenue in the construction, arts and recreation, and administration sectors.
Fortunately, some additional support is on the way. The Federal government delivered a gangbuster budget deficit equivalent to 11% of GDP, and the RBA is giving guidance that official interest rates will stay at zero for three years. Most state and territory governments are in the midst of rolling out additional support measures in their respective budgets. The Federal government has also announced that permanent reforms to insolvency regulations for small businesses will be put in place from the start of 2021, which may provide some additional support to small businesses once current temporary measures are removed.