ARITA members COVID-19 issues – second survey (June 2020)

07/07/2020

ARITA's second COVID-19 issues survey was conducted in mid-June, as a follow-up to our first survey in mid-April.

187 members (83% accountants including liquidators/trustees, 13% lawyers, 4% others) participated in this latest survey, giving a reliable insight into what is occurring across the profession.

Key findings:

• Appointment levels have continued to freefall with 45% of firms reporting appointment levels have continued to drop over the last month, after the mid-April survey reported 57% had falling levels since prior to COVID-19. This is backed up by ASIC data showing appointments down more than 50% year on year for the period and AFSA data showing similar drops in the personal insolvency space.
  
  
• In aggregate, this has 78% of firms reporting engagements are down on the same period last year, with 59% describing them as significantly less than last year.
  
  
• A continuing concern is the fall off in safe harbour advisory work. At a time when many organisations are clearly in distress, 31% of respondents said that their safe harbour work was at lower levels. Only 6% reported any increase in safe harbour work.
  
  
• The impact on the profession of the collapse in appointment numbers is clearly borne out by close to 55% of firms reporting as having accessed JobKeeper and, by implication, showing that revenues were down at least 30% year on year. Medium sized firms (3-10 partner) were the most likely to have accessed JobKeeper (close to 80%), with small firms (1-2 partners) the next hardest hit with around 63% having accessed JobKeeper.
  
  
• 14% of firms reported that they had implemented 'a few' redundancies as a result of the downturn in work, with another 10% expecting to. Large firms (more than 10 partners) were the most likely to have implemented redundancies while small firms (1-2 partners) were the least likely. As an offset, 6% said they were planning to recruit.
  
  
• Pleasingly, concerns about the viability of restructuring, insolvency and turnaround firms have also reduced compared to the last survey. In the mid-April survey, 13% of respondents said they were very concerned. This has fallen to 10% in the mid-June survey. In mid-April 42% reported they were slightly concerned. By the mid-June survey this has fallen to 33%. Nonetheless, 43% of firms continue to hold some concerns for their own viability in the current market.
  
  
• The impact of the (at that point) yet to be estimated ASIC Industry Funding costs for 19/20 was weighing on the minds of firms. 36% said that they were very concerned for its impact on their viability. Subsequently, ASIC released its forecasts which were up on last year. ARITA continues to hold concerns that, given the reduction in appointments, and therefore metric events, the estimate continues to be understated.
  
  
• Despite the reduction in appointments, nearly 40% of all respondents reported seeing an increase in so-called zombie companies as a result of the current economic and policy circumstances.
  
  
• 42% of respondents believe we 'very likely' to see a major spike in insolvencies once stimulus like JobKeeper and other protections end by October. A further 32% view that spike as 'likely'.
  
  
• Despite the contraction of the profession over recent years, 21% of respondent firms think they are 'very well' resourced to manage the uptick in insolvencies and a further 49% think they are quite well resourced. Only 28% felt they were under-resourced.
  
  
• While we continue to hold concerns for their further emergence, it appears that the current government programs to reduce insolvency and support businesses may also be causing harm to dodgy/unqualified insolvency advisers. At a time where their tactics to prey on those in financial distress may be coming to the fore, only 6% of respondents were seeing evidence of a significant increase in their activities and 16% reported a slight increase. This situation may well alter without further government intervention to stop dodgy advisers before the expected uptick in insolvencies come October.