Presented by Jones Partners
Scott’s Refrigerated Logistics
Before entering liquidation in March of 2023, Scott’s Logistics was the largest frozen food distributor in Australia. In tandem with the usual high inflation, increased cost and labour shortages, Scott’s Logistics encountered a plethora of operational problems and failures, caused by an expensive IT system upgrade. These failures caused an extensive loss of client base and ran up significant costs. The parent company, Anchorage Capital Partners, has also faced extensive criticism for its failure to provide effective management during this time. The business was unable to pass on these increasing costs to consumers and was additionally struggling with tight profit margins from inherited, unprofitable fixed contracts. The company entered voluntary administration in late February, and shortly after decided to liquidate.
Porter Davis Home Group
The 12th largest Australian home builder, Porter Davis, collapsed on Friday 31st March 2023. Porter Davis was struggling with several harsh market conditions caused by the pandemic, including the usual supply chain issues, declining demand, slim profitability and high inflation. In addition, they also had a severe liquidity issue. After several unsuccessful attempts to acquire working capital from lenders, the directors placed the company into administration.
The collapse of Clough Group in December 2022 can be attributed predominantly to the unforgiving nature of fixed price contracts during high inflation. Construction companies have suffered the ramifications of supply chain issues more than any other industry, with these challenges resulting in a significant increase in the price of fundamental raw materials such as concrete, steel, oil and most importantly, labour. This, combined with cash flow problems and extensive debt, brought an end to this construction giant.
Are we Surprised? No. Here’s Why.
As previously stated, the COVID-19 Pandemic marked a period of heavy fiscal spending and tax relief. Businesses with questionable balance sheets were able to persevere, in what was more than two years of suspended economic reality. As commercial reality begins to take its course, we must now allow market conditions to dictate the future of Australian businesses once more.
Jones Partners predict that cases of insolvency will continue to increase over the next 6 months. The businesses most vulnerable to these challenges fall into two categories. The first group are called “marginal businesses,” which were only able to survive through the pandemic due to stimulus and tax relief. The second group are businesses whose dealings are severely impacted by harsh market conditions (the legacy of the pandemic) such as inflation, supply chain issues and labour shortages. Businesses that operate under fixed contract dealings, with tight profit margins, are particularly vulnerable.
The road ahead is undoubtably challenging. Businesses that encounter financial difficulty should seek help early on. There are many options available, particularly whilst the ATO is practicing a collaborative approach to debt recovery.
Call our specialists on +61 2 9251 5222 to explore the numerous restructuring options available.