Wednesday, 6 May 2020

Business brakes coming off just in time: survey

Signs that business restrictions may soon be lifted are coming just in time for thousands of companies in key labor-intensive industries, according to a national survey of corporate troubleshooters.

A national survey by KordaMentha Corporate and the Turnaround Management Association of Australia (TMA) shows that four out of five professionals in the industry believe companies in the hospitality, tourism and retail/consumer services industries will last less than three months without a return to business as usual or more government help. Many would last a month or less.

The next most vulnerable industries are education, real estate and manufacturing, where four out of five practitioners believe companies can last less than six months.

The most resilient industries are energy and utilities, mining and health, with three out of five practitioners believing those companies could last more than six months.

Most of the turnaround industry believes Australia’s post-pandemic economic recovery will be gradual rather than quick, with 58 per cent believing the recovery will be U-shaped and only 10 per cent believing it will be V-shaped.

The survey included more than 300 corporate renewal professionals, lawyers and lenders. They identified cost reduction, rather than revenue growth, as a key focus area as businesses position for recovery.

Chris Martin, Partner at KordaMentha Corporate, said: “Although many businesses may be able to survive in hibernation until the government-imposed restrictions are lifted, their ability to reboot is unclear. There are significant questions and challenges facing businesses including customer patronage, working capital requirements and how supply chains can be restructured.”

Carl Gunther, President of the TMA, said: “Early intervention and clear planning by management and boards, assisted by reputable advisers, TMA members and their firms, will be required to assist Australian businesses as they navigate the challenges and economic distress of a post-COVID economy.”

Other findings of the survey included:

  • Most respondents believe the Commonwealth and State governments have done enough to support Australian businesses in response to the COVID-19 epidemic.

  • 25 per cent of respondents believe businesses are not prepared to ramp up once social distancing restrictions are lifted.

  • 63 per cent of respondents say debt or equity financing for recovering businesses will be worse over the next 12 months.

  • While the outlook for some industries is clear, the outlook for others is mixed. One third of respondents expect food and agriculture to be negatively impacted over the next 12 months but one third believe it will be positively impacted. In media communications, half expected a negative impact but a third expected a positive impact.

The survey revealed a ‘calm before the storm’ sentiment in the industry, with 59 per cent having an increase in enquiries over the past month, but 27 per cent experienced a reduction in enquiries.

A majority (65 per cent) believed Australia’s turnaround and insolvency legislative regime was sufficient to deal with the economic impact of COVID-19. 55 per cent said the Government’s relaxation of Australia’s trading while insolvent laws would reduce the number of corporate crashes over the next 12 months.

Suggested changes to the laws in the COVID-19 environment included extension of the relaxation of the trading while insolvent rules, reconsideration of a Safe Harbour regime for small to medium businesses, an extension of the employee Fair Entitlement Guarantee Scheme to Voluntary Administrations for a defined period and introduction of US-style Chapter 11 restructures.

Click here to see the results of the KordaMentha Corporate | TMA Survey.