Most businesses receiving JobKeeper are using the money to survive while they get in shape, to rebuild once the support tapers off. Or they should be. But what about the JobKeeper-funded Zombie companies? The ones now artificially propped up that would have naturally closed their doors by now – virus or no virus?
Directors of Zombie companies are probably feeling a little bit happy with things at the moment. Government stimulus through initiatives like JobKeeper has put some dollars into their coffers; they are continuing to trade, are making sales, generating some additional revenue and ignoring the major problems with their business.
A Zombie Director might be thinking back to March 24, and resting easy. It seems like a lifetime ago, so here’s a reminder of what happened then:
- Insolvent trading rules were relaxed for six month exemption period
- The minimum debt required to issue a Bankruptcy Notice or liquidation proceedings was raised to $20,000
- The time allowed to respond to a Bankruptcy Notice or Creditor’s Statutory Demand was increased from 21 days to 6 months.
“Being a Zombie or semi-zombie yourself is not risk-free – due to the things like the Director personal liability for GST provisions introduced mid-pandemic on 1 April 2020. If they are currently trading and taking advantage of JobKeeper to stay afloat, they may ultimately fold with ATO existing or new tax and superannuation debts outstanding, and that can come back to haunt those Directors personally.
“The current insolvency exemption period is a special circumstance and will not last forever. Businesses that have existing debts for GST, PAYG and Super will be liable for those debts and any that they accrue during the pandemic. Company Directors must understand that if they close their business or resign a Directorship and those particular types of debt are outstanding and haven’t been properly reported to the ATO, they are potentially liable for that debt personally, as they were a Director of the company when the debt was incurred.
“The ATO will not simply forgive a debt incurred before the pandemic and are unlikely to forgive one incurred when stimulus money is flowing into the economy and the bank accounts of Zombie companies. There will be a balancing of the ledger at some point, and for Directors of Zombie companies, that could result in a real risk of personal bankruptcy,” said Mr Cotter.
Life might seem pretty OK as a Zombie for now, but if you know someone running a business like that, best piece of friendly advice is act now – the ‘Zombie afterlife’ could be as bad as it sounds!