The Australian Small Business Ombudsman Kate Carnell says the Federal Government has thrown a lifeline to thousands of struggling small businesses with its plan to overhaul insolvency rules and allow companies to trade while insolvent. But she’s called for $5,000 vouchers to be made available so struggling owners can access ‘critical’ financial advice.
The new insolvency rules announced by the Treasurer are in line with the recommendations outlined in the Insolvency Practices Inquiry final report handed down by the Ombudsman in July this year.
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| 'Many businesses on an express train to winding up': ASMFEO Kate Carnell |
“It’s clear the Federal Government has heard our concerns that current insolvency practices do not work for small and family businesses,” says the Australian Small Business and Family Enterprise Ombudsman (ASMFEO). “Our July report found that in many cases, small businesses were not getting the chance to turn their business around and instead finding themselves on an express train to winding up with zero control over the process.”
The reforms will allow small businesses to restructure their debts while remaining in control of their business. For those businesses that do need to wind up, the liquidation process will become quicker and easier.
“We know the COVID crisis, which has come on the back of devastating natural disasters, has driven many small businesses to the brink,” Carnell says.
“ASIC data shows insolvencies are tracking at close to 50% below 2019 levels, which goes to show the extent to which government stimulus and protection measures are keeping businesses on life support, including businesses that have not been viable for some time.
Deloitte Access Economics modelling estimates about 240,000 small businesses are at risk of failure.
“This highlights the need for small businesses to sit down with their trusted financial adviser for a viability assessment,” says Carnell. “Unfortunately a measure to address this critical first step was missing from today’s announcement.
“That’s why my office continues to recommend the establishment of a small business viability program, where small business owners facing financial stress can obtain a voucher valued up to $5,000 to access tailored advice on the state of their business. The voucher would ensure small businesses have access to the expertise they need to judge business viability.
“Unfortunately small businesses with cash flow issues, compounded by falling revenue, may not seek out professional advice because it’s deemed to be unaffordable. This could prove to be devastating for the business owner and their family. We know the sooner a small business owner experiencing financial stress seeks assistance from an accredited professional, the better the outcome.”
This week’s announcement will support the Federal Government’s temporary extension of insolvency and bankruptcy protections to 31 December 2020, Carnell says.
“These regulations reduce the threat of creditors taking action against a small business impacted by trading restrictions and extend temporary relief for directors from any personal liability for trading while insolvent. Crucially, these measures give otherwise viable small businesses more time to recover, preventing a wave of unnecessary insolvencies.”
The new insolvency arrangements were welcomed by national employer association Australian Industry Group (Ai).
"The new measures are a sensible step that could pave the way for further insolvency reforms that extend these greater flexibilities to a larger range of businesses,” says Ai CEO Innes Willox. “This is another welcome measure that will potentially provide further support for the thousands of businesses under stress due to COVID restrictions.”
"Australia's current overly risk averse insolvency arrangements provide little scope for businesses to work with their creditors to restructure their operations to put the business on a sustainable footing. Many businesses that could work their way out of trouble face too many barriers and are prematurely wound up.”
