The Small Business Ombudsman says legislation introduced into Federal Parliament to overhaul the insolvency process for small businesses will ensure that business owners "have the option to turn their businesses around, giving them a fighting chance to survive." An estimated 240,000 small businesses across Australia are at risk of failure because of Covid-19.
(image: ASBFEO)
The legislation tabled in Parliament on Thursday would make is easier for small businesses to restructure or wind up and is in line with recommendations made in the Ombudsman’s Insolvency Practices Inquiry final report, released in July.
“These landmark reforms will be a game-changer for small businesses, particularly those that have been heavily impacted by the COVID crisis,” said Australian Small Business and Family Enterprise Ombudsman Kate Carnell.
“Instead of finding themselves on an express train to winding up with no control over the process, these changes will ensure small businesses will have the option to turn their business around, giving them a fighting chance to survive. Crucially, by moving to the ‘debtor in possession’ model, small businesses can restructure their debts while remaining in control of their business.
“For those businesses that sadly need to wind up, the liquidation process will be simpler, faster and cheaper. We know the pandemic, which followed a devastating season of natural disasters, has driven many small businesses to the brink."
Deloitte Access Economics estimates about 240,000 small businesses are at risk of failure.
“This is exactly why small businesses need to sit down with their trusted and accredited financial adviser for a viability assessment as a matter of urgency," said Carnell, again calling on the government to introduce a $5,000 grant to allow business owners to access financial advice.
“It is this critical first step that small businesses would be more likely to make if the government adopted our recommendation to establish a small business viability program, providing small business owners facing financial stress with a grant valued up to $5,000 to access tailored advice on the state of their business. Unfortunately small businesses with cash flow issues, compounded by falling revenue, may not seek out professional advice because it is deemed unaffordable. This could prove to be devastating for the business, staff and family.
“Ultimately this legislation represents enormous progress and if passed, the new insolvency process will be available to small businesses from 1 January 2021. Crucially, this will give otherwise viable small businesses a chance to recover, preventing a wave of unnecessary insolvencies.”
