What is a zombie company?
Let’s face it, a lot of businesses were in strife prior to COVID-19 and during the pandemic these companies took advantage of the government stimulus packages such as Job Keeper to keep their staff employed and their businesses above water. During the pandemic creditors have become more lenient allowing companies to exceed their normal terms of trade.
The phrase “Zombie Companies” emerged post Global Financial Crisis (GFC) to mean “businesses that carry debt beyond their overall value” in other words trading while insolvent. As restrictions become more relaxed due to the Corona Virus pandemic, the country is on the brink of a recession as government relief packages can only go so far, the Zombie Companies are again emerging. If we don’t support these distressed companies, there will be a bigger wave of insolvencies in the new year if and when insolvency guidelines return to normal.
How to spot a Zombie Company?
The warning signs of a Zombie Company are the same as the signs to look out for when a company could be in financial hardship.
- Slow to pay, partially pay bills or are continuously late in paying even prior to COVID-19 pandemic began.
- Do not return calls and avoids creditors
- Gives excuses saying they believe payment was already made or constantly breaks payment arrangements.
How can you protect yourself against Zombie Companies?
Businesses are encouraged to update their Credit Contracts, Terms & Conditions and register on Personal Property Security Register (PPSR) so you have a retained interest in the goods you are supplying to a client. This means that if a client doesn’t pay or goes broke then you are in a good position to get your goods or their value back.
Your business’ Terms & Conditions should include clauses that protect your business such as:
- Cost Recovery Clause – this means that if you need to refer the outstanding debts to a Debt Collection Agency it then becomes cost neutral.
- Director or Personal Guarantee – In the event that a company goes into liquidation the director becomes personally liable for the outstanding debts.
- Default Clause – If a company exceeds payment terms then you have the ability to lodge a credit default against the company and or director. This will let other companies know that they have defaulted and the company may have difficulties in obtaining further credit in future business dealings.
Become a member of a Credit Reporting Bureau
Become a member of Equifax, Illion or Creditor Watch and vet your potential clients before they become a potential problem.
Tools to use as part of your membership:
- Credit Risk Assessment – Find out if the potential client has credit defaults or court judgments that could reduce their credit scores and make them a higher risk.
- Cross Directorship Searches – Find out if the director of your potential client has been a director of other companies that have gone into liquidation (phoenix) or have been wound up by other companies.
- Credit Enquiries – See if your potential client or its directors have made recent credit enquiries, how many enquiries and if the enquiries were to your competitors or similar businesses. This will impact their credit scoring and may pose a higher risk if you choose to deal with them.
The New Year Economy Outlook
Like the ending of any Zombie movie there are many dead zombies laying around and only a few survivors emerging to see a new day. This will be the case when the Insolvencies restrictions are relaxed. There will be many Zombie Companies going into external administration or liquidation or they will enter voluntary administration.
Assure Recoveries can assist in collecting outstanding debts and have our solicitors look at your current Terms & Conditions to see if your company is protected from the unexpected in today’s volatile economy.
Our staff are licensed commercial agents and are experienced in all facets of debt collecting in a wide range of industries. A dedicated account manager will be assigned to your files and you can feel at ease knowing that your outstanding debts will be collected promptly and effectively liaising with you each step of the way.
Assure Global Plus is part of the NCI Group of Companies and is highly experienced in all facets of debt collection. We can assist with all your debt collection & recovery, legal support services and credit risk management requirements. Simply contact us at assureglobalplus.com.aua