文摘

Australia retail insolvencies: More to come

Retailer insolvencies are likely to rise as Australia scales back COVID-19 relief policies. However, a recent ruling has favoured landlords.

九月 01, 2020

Store closures, social distancing policies and reduced discretionary spending have placed significant pressure on retailers and shopping centres during the COVID-19 crisis. Fortunately, Australia has had one of the strongest fiscal responses globally, which has alleviated the potential severity of the crisis to date. The Australian government recently extended its key business and wage support policy, JobKeeper until March 2021. However, the government will begin scaling back payments from September 2020 onwards. In addition, the government’s six-month-long Temporary Relief for Financially Distressed Businesses policy is also ending in September 2020. The policy includes a six-month extension to insolvency declarations and a temporary increase in the minimum threshold for creditors demands, from $2,000 to $20,000 for businesses. Company directors are also not personally liable for insolvent trading during this period.

While these measures have been in place, company administrations have trended downwards across the retail trade and food services categories – the two categories most relevant to shopping centre landlords. Administrations in these categories have fallen 15.4% year-on-year (y-o-y) and 14.5% y-o-y, respectively, as of June 2020, according to the Australian Securities and Investments Commission (ASIC). The decline in administrations shows that the temporary measures have been effective and are likely to be upholding smaller retailers who have benefited most from the government stimulus and the increased creditor demand threshold.

However, while the overall number of retail businesses entering administration has declined, some of those that have entered administration recently have substantial stores networks. JLL has been tracking voluntary administrations for major retailers since 2016. As of August 2020, the number of stores exposed to voluntary administration is greater than the previous annual peak in 2016. Australian retailers that have entered voluntary administration since March include the PAS group, Aussie Disposals and Seafolly. From the time JLL began tracking, 75% of retailers that have gone into administration have closed their entire network. Those that have retained a physical store presence have halved their network on average. Over this period, approximately 1,800 stores across major retailers have closed after voluntary administration.

Figure 1: Total stores – retailers entering voluntary administration (to August 2020)

Source: JLL Research

The overall decline in insolvency despite challenging economic conditions and the continuing trend of larger retailer insolvencies, suggests that there is likely to be a substantial influx of voluntary administrations across the retail industry as relief policies come to an end.

Fortunately for landlords, a recent court case ruled that rent incurred while a business is in voluntary administration could be recognised as a priority payment. In this case, the PAS group was ordered to pay Australia’s largest landlord, Scentre Group, all rent owing and what had been accrued during administration. This decision means insolvent retailers will have to vacate premises to avoid incurring additional costs or they will have to continue paying rent. In this scenario, landlords will now have the opportunity to re-lease the store, or they will be compensated for the continued occupation of the tenancy. Although re-leasing space will be challenging given the economic climate, this is a fair outcome.

To date, the number of stores exposed to voluntary administration in 2020 equates to approximately 1.4% of speciality stores nationally, a relatively low figure. However, this figure is likely to increase as relief policies are wound back, resulting in pressure on retail vacancy, and subsequently rents. COVID-19 has exacerbated the challenges that many retail business models were already facing. The ongoing transformation of the retail industry is likely to result in an increase in insolvencies, and potentially more retailers being restructured or bought out.

Figure 2: Rolling annual – number of businesses entering external administration 

Source: ASIC, JLL Research