The risk of commercial agents encountering a phoenix or zombie company among their pool of tenants remains high despite Australia’s notably positive economic indicators credit industry sources warn.

Zombie companies are those that eventually fail as their profits cannot cover costs. In the covid age, zombie companies are most likely enterprises in existence only due to virus-related government support, bound to collapse and default on multi-year leases when subsidies run out. Phoenix companies are different but equally menacing. Illegal phoenix activity involves winding up a company and transferring assets from that entity to a new one with the express intention to avoid payments and liabilities including any owed to creditors and the tax department.

Even though the country’s economic recovery has been far more rapid than expected, Patrick Coghlan, CEO of credit reporting agency CreditorWatch said the impact of JobKeeper finishing at the end of March and the removal of government safety nets that kept businesses trading would only become fully apparent in another six to 12 months.

“We also have to consider that over 40,000 jobs were lost as a result of JobKeeper finishing, and the full effects of that also won’t be felt either for probably another six months,” Mr Coghlan said.

“Administrations are still down compared to March 2020, the first month impacted by the pandemic. We haven’t seen them jump yet but they will.

“We are still living in a synthetic economy.”

Another major reason insolvency numbers are still even nowhere near those seen pre-pandemic is the Australian Taxation Office decision to hold off pursuing companies since covid hit.

However, Paul Nogueira, partner at national firm Worrells Solvency and Forensic Accountants, said the tide had just started to turn.

“Insolvencies are still suppressed there is no doubt,” Mr Nogueira said. “But we have only recently started noticing this month the ATO getting tougher and starting to ramp up collections. The ATO is basically one of the single largest administrators and now that it is gearing up again we will probably start seeing increased numbers of companies wound up in the third or fourth quarter of the year.”

Commercial real estate agents and landlords should be most vigilant around the financial viability of hospitality and retail tenants, Mr Coghlan said. These industries were among the hardest hit by snap lockdowns and disappearance of lifeblood consumer foot traffic, factors which have led to both small and larger players closing their doors. Mr Nogueira agreed, adding that since January he has also been involved in administrations across the construction, healthcare, and tech industries including a retirement village.

As commercial agents hold a fiduciary responsibility for ensuring tenants possess the financial capacity to honour a lease (and sustain operations beyond government support), leading credit information provider Equifax has made available to the industry highly detailed Commercial Credit Risk reports via the REI website. These reports go beyond a regular ASIC search to provide the clearest insight possible on the financial health of a current or prospective tenant.

The Equifax reports, obtainable on the REI Forms Live facility, provide a trading history containing not only ASIC information but also company credit histories, and details of directors, owners and those who stand to profit. The information is gleaned from Equifax’s capability for tracking how a company is paying others in the market, and therefore helps forecast future success – or not.  Profiles and credit scores are included for each director.

Access the forms here: REI Forms Live