Commercial Law
Tips for limiting business distress in the agricultural sector
Between floods, supply chain constraints, labour shortages, cool relations with China and rising fuel costs, the agriculture sector is facing significant pressure which could result in serious financial distress for many Australian farmers and agricultural businesses.
Small business lending interest rates have increased significantly as the RBA increased the cash rate over eight consecutive months.
Added to that fuel prices have been driven upwards due to both global and domestic factors. Statistics from ABS show that Articulated Trucks (semi-trailers) travelled an average of 78,300 km per vehicle in 2020, which equates to around 40,000 litres of diesel. In October 2021 the cost of diesel would have been $63,000. Within a year, it has jumped to around $85,000, a staggering 35% increase in fuel costs. In addition, tax credits for fuel ended in September, adding further pressure to business bottom lines.
Coupled with environmental and economic stresses, Government support of Australia’s agricultural sector is very low compared to the rest of the OECD, at just 2.5% compared to an OECD average of 15.1%.
COVID-19 seriously disrupted international container and air freight routes, resulting in higher prices for consumers, and travel restrictions reduced the availability of seasonal workers.
It is little wonder agricultural businesses and associated industries are starting to feel the pinch. Some businesses will still thrive, but for some it may be one knock too many on the back of tough conditions. The key to business continuity is to seek advice early. Look for the warning signs that signal financial distress.
Early intervention measures could be the difference between business continuity and liquidation.
Some of the signs to look for include:
- Ongoing business losses – If your business has been trading at a loss for two years or more, review and streamline or cut any low or non-performing investments or processes. A professional can help you to identify where your business could make further savings.
- Unable to pay tax debts – It’s not unusual to use money set aside for tax to meet wages and supply costs although it’s not a sound business practise. Tax debt can result in interest and penalties, making the situation worse. You can try to negotiate a repayment plan with the ATO to avoid any penalties.
- Unable to meet superannuation contributions – If you cannot pay employees’ superannuation, the outstanding amount will become an ATO debt under the Superannuation Guarantee Act. It will accrue interest and penalties with the ATO and could see directors of the company personally liable for failure to pay.
- Debt, demands and no access to credit – If you are unable to get access to credit, extend your existing lines of credit, are in receipt of payment demands, or have suppliers insisting you pay COD only, it’s time to speak to an insolvency expert who may be able to identify alternative payment arrangements to give you some breathing space, or free up some cash to continue trading.
Speaking to an insolvency expert doesn’t necessarily mean the end of your agricultural endeavours. If you seek advice as soon as you see the warning signs it could result in a restructure so you can continue trading.
At Ezra Legal, our team of commercial lawyers know that clear and accurate commercial advice on trading and insolvency is critical to your commercial success. We provide commercially relevant legal and strategic advice on complex business decisions, striking the right balance between legal considerations and commercial reality.
For more information and expert advice to ensure that your business continuity runs smoothly, ask to speak to a lawyer at Ezra Legal on (08) 8231 6100 or email reception@ezralegal.com.au
For information on the range of commercial legal services that we provide at Ezra Legal, head to:
Julian Roffe
Practice Manager
Ezra Legal
